Customer Relation

Churn Prevention – how to keep your customers

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06/11/2020
Reading time: 9 minutes

Customer churn is part of every business to some extent. However, to keep the churn rate in a moderate range, it is important to take churn prevention measures.

Learn about the most important approaches in this article.

Churn prevention - factors of customer loyalty

A satisfied customer is a loyal customer. Customer satisfaction is one of the main factors in customer retention. The terms customer satisfaction and customer binding or loyalty are not completely synonymous, however, because only a very high level of satisfaction really ensures a significant increase in customer loyalty.

Satisfaction levels of this kind are generally no coincidence, but result from targeted customer expectation management (Customer Expectations). Die Anforderungen deiner Kunden lassen sich in Basis- und Begeisterungsanforderungen einteilen. Your customers’ requirements can be divided into basic requirements and enthusiasm requirements.

The basic requirements are self-evident, such as meeting delivery deadlines. Meeting basic requirements, if fulfilled, only ensures a low level of satisfaction, while not meeting them leads to great dissatisfaction. On the other hand, there are the so-called

Enthusiasm requirements. Underfulfillment of these requirements is not really a problem, but if they are fulfilled, this greatly increases customer satisfaction.

Customer loyalty to your product, service or brand is based on various drivers that Mayer and Oevermann have compiled. These are the factors that can keep your customer after all in case of a cancellation reason. You should keep the following customer retention factors in mind:

By contract – how is your customer bound to you? Long contract terms make switching unattractive for your customers..
Technological – Switching may affect compatibility. If you are the only one to offer special toner cartridges for a copier system, the owners of such a copier are more likely to remain your customers than to buy a new device. Of course, if your prices or conditions are too bad, churn and problems with new acquisition can still occur.
Economic – All factors that provide your customer with monetary advantages and disadvantages, such as discount promotions, but also cancellation fees for contracts.
Psychological – this category includes all factors that cannot be measured quantitatively. These include your image or your personal relationship with the customer.

A. Meyer, A. / Oevermann, D.: Kundenbindung, in: Handelsblatt: Wirtschafts-Lexikon: Das Wissen der Betriebswirtschaftslehre: Kapazität und Beschäftigung – Kundenmanagement, Bd. 6, Stuttgart 2006, S. 3334-3342

You can see how churn and attrition extends throughout the customer lifecycle in the figure below.

Know your customer - how customer data helps you

Successful churn prevention is based on collecting as much and as diverse customer data as possible. Based on this information, you can identify customers with churn tendencies and take measures to retain shaky candidates.

The data is collected at various points in the customer journey, for example at the point of sale (POS), i.e. when a purchase is recorded in the store or in your online store. Service and support also provide valuable insights into your customers and their satisfaction. Does a particular customer make frequent returns? Or has he voiced complaints recently?

Examples of useful information that can help you understand your customer include:

Complaints and returns – number, reason and frequency
Time passed since last purchase
Frequency of orders / purchases
Average order value of the customer
Location in the purchase process where orders were abandoned – this can also help to identify weaknesses in the UX

To collect and analyze your customer data, you should use a central . Customer-Relationship-Management-System (CRM-System) that collects all your customer data and stores it in one central location.

Churn Prevention is just the beginning!

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Prevent churn step by step

A good churn prevention strategy consists of three steps:

1. Analysis

To start with, you need to find out why you are currently losing customers. What keeps your current customers from buying again or renewing their contract? The reasons can be varied and can also consist of individual experiences such as a late delivery or a telephone call that went badly. Basically, a distinction can be made between three different categories of reasons for churn (Bruhn, Michalski 2005):

Company-related reasons – problems with things like your offering, customer service, or even your products themselves.
Customer-related reasons – these include events in your customers’ lives, such as a move, career or family changes.
Competition-related reasons – this includes, for example, the entry of a new competitor or even a discount promotion by a competitor.

The best way to identify existing reasons for churn is through event-driven analysis of your customer relationships. Discover our CRM Analysis and Optimization. Here, you look at events on both the customer and company side to see how they affect the likelihood of churn, or have done so in the case of customers who have already been lost.

This enables you not only to determine which customer groups are most receptive to win-back measures, but also to find the points whose improvement has the greatest potential for increasing customer loyalty.

This kind of analysis is not always possible because your customers often do not give precise reasons for their churn, or there is no precise churn date at all. If it is not possible for you to perform such an analysis, you can still proceed with the next steps.

2. Monitoring

The aim here is not only to analyze customers who have already been lost, but also to identify churn tendencies among existing customers. The customer data described above will help you to do this.

The CRM system can work with this data and calculate key figures about your customers that make churn tendencies visible. It is important that you choose a calculation model that fits your product and your customers. The term “churn” can vary greatly from case to case, which is why there are different models.

3. Measures

After you’ ve identified customers at risk of churn, you should take steps to prevent them from quitting. There are four different strategies:

Incentive and reward strategy – incentives such as discounts, invitations or previews aimed at keeping the relationship attractive to your customer.

Compensation strategy – if a customer has suffered financial damage due to a mistake on the company side, this strategy takes effect. Make sure you compensate for the damage in order to keep your customer.
Communication strategy – this strategy is useful when a customer has lost trust in your company or questions the sense of your offer. Get in direct contact with your customer, rebuild trust and explain the benefits and purpose of your product or service.
Barriers to termination – create hurdles that make it difficult to leave. These barriers can be technical or financial, for example. This strategy sometimes requires more advance planning than the others.

Tailor strategies to the reasons for churn in each case. For example, personal dialog can help with negative customer service experiences, while incentives can be used to prevent churn for competitive reasons.

Remember to weigh up the costs and benefits of the measures. A customer value analysis can help you do this. The value of a customer (Customer Lifetime Value)can be calculated from the profit you can make from them throughout their lifecycle. This includes not only direct profits, but also indirect ones. These can result from the multiplier effect of a customer, for example.

Measure and evaluate the success of your measures to improve your retention marketing. The most important key figure for this is the churn rate.

Common mistakes and challenges

When using churn prevention strategies, there are pitfalls you should be aware of and avoid:

Data fragmentation – different data about your customer is located in different places. This makes it difficult to evaluate and manage the data. A central CRM system can help here.
Treat different customers alike – Some customers are more profitable than others. Find out which customers are most important to your business and offer these customers a special service such as special offers, invitations or emergency support.
The focus is more on new customer acquisition, while increasing sales by further developing existing customers is neglected.

Conclusion

In order to effectively prevent customer churn, you first need to understand the needs of your customers and find out the reasons why they churn. Collecting and analyzing customer data with a CRM system helps you identify customers with churn tendencies.

When this is done, there are various measures and strategies you can use to retain your customers. Keep in mind that different measures fit different reasons for churn. Also, keep in mind that some customers are more profitable than others and the effort to win them back should be proportionate.

André Wehr

About Me

As a founder and entrepreneur, I experience on a daily basis how important customer centricity is for companies.

Incorporate the essential perspective of the customer into your product genesis and marketing processes. This gets horsepower on the road, and your business up and running.