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 [email protected] 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.
