Unless you are in the butter industry, churn is not a good word. Most business leaders know, instinctively, that it is cheaper and more effective to retain an existing customer than it is to invest the time and resources required to find a new one, but a few companies are taking it one step further by having very focused customer retention programs strictly for those they fear might churn.
“All too often companies spend enormous marketing and sales budgets trying to build new business,” says Steve Boyazis, the executive vice president of InfoCision Management Corp. “A great adjunct to this sales strategy is built around customer retention. But to make it work, you need to identify those customers that are going to churn and attack them with a proactive program.”
Boyazis recently completed an in-depth study that showed how to identify customers on the bubble and how to keep them in the family. It can return $10 for every dollar spent.
Smart Business spoke to Boyazis about customer churn and how to identify and prevent it.
How do you know who will churn?
It can be just as expensive to offer a ‘retention special’ to everyone as it would be to acquire a new customer from scratch. The companies that are doing it well are focused and specific. The beauty of this type of marketing is that you actually have real data to test and build models for — you don’t have to rely on focus groups and feelings.
So, the first step is looking at all of your existing customers, their average spends, their purchases, etc., and determine who churns from this group. You then can build a statistical model to identify indicators of churn.
Once you’ve got a quality internal model, you can even take it a step further and overlay national psychodemo-graphic data to help identify populations who may churn if you were to sell to them in the future.
There is no prescriptive answer as to what might be in the model, but red flags could be things like if a customer does not contact you within a month’s time, if normal sales patterns drop, if the customer pays its bill late, if your industry typically offers a suite of products but a customer regularly buys only one thing from you. This is why it is important to mine psychodemographic data and buying data for patterns. The real art here is to have a good model of who is likely to churn and be able to reach out to them in a very specific fashion.
What is the next step?
This is where doing business intelligence comes into play. Build a model that takes into account the number of customers who are likely to churn and figure out what will attract them to stay. It could be a special offer. It could be some personalized or customized sales effort. That will vary by industry. Keep in mind that to sell more to your existing customers, you have to be proactive. You might want to extend them a special offer, one available only to those who are slipping away from you.
The churn-reduction effort can be done with direct mail, telephone, e-mail, face to face, whatever you prefer. It depends on the industry, customer demographics and what customers expect. A combination of two or more programs will be the most effective answer. A layered approach builds awareness, explains the offer and follows up with any questions the customer might have.
What’s the cost of doing something like this?
Think about all of the work involved in selling a new product: research to find a target audience, running focus groups, finding lists that meet the target demographics, etc. It can cost $50 or $70 or more to drive a single order. Any good client management strategy will also take some portion of this budget to identify offerings that make customers stick.
When the offers or messages are well focused, the returns speak for themselves — 10-to-1 or better. But, by the same token, spreading offers to everyone is just a waste of money.
STEVE BOYAZIS is the executive vice president of InfoCision Management Corp. Reach him at Steve.email@example.com or (330) 670-5877. In business for 25 years, InfoCision Management Corporation is the second largest privately held teleservices company and a leading provider of customer care services, commercial sales and marketing for a variety of Fortune 100 companies and smaller businesses. InfoCision is also a leader of inbound and outbound marketing for nonprofit, religious and political organizations. InfoCision operates 32 call centers at 13 locations throughout Ohio, Pennsylvania and West Virginia. For more information, visit www.infocision.com.