Keeping customers by keeping them happy

Churn management is no one’s idea of fun. But if you run a subscription-based business, your very survival may hinge on your ability to retain fickle customers.

Some consultants and academics have been studying the growing phenomenon of customer churn. And they’re concluding the best retention strategy may be stopping turnover before it starts. That means building trust with existing customers by understanding their experiences, perceptions, and behavior, rather than chasing after new customers or trying to woo back those who have already fled.

By Robert Weisman, 3/7/2004

http://www.boston.com/business/globe/articles/2004/03/07/keeping_customers_by_keeping_them_happy/

”It’s like a bathtub," suggested Martin Kon, a director in the New York office of Mercer Management Consulting, who coauthored a new company report on combating churn. ”You can pour more water in, but if you don’t plug the the drain, you’ll just be running to the sink."

Over the past decade, churn has accompanied the proliferation of subscription businesses. Such businesses include service providers for cellphones, cable television, and Internet connections, as well as membership organizations such as book clubs or health clubs — any service where, once enrolled, customers remain until they decide to leave. And those defections can seem to come out of the blue, prompted by dissatisfaction, tighter personal budgets, or sales promotions from competitors.

”Customer loyalty is down significantly across just about every industry," said Raj Sisodia, professor of marketing at Bentley College in Waltham, who looked at churn as part of a study on the image of marketing. ”Marketers have trained customers to be very deal-prone. Customers tend to not buy a specific brand. They buy whatever brand has a sale. From a business perspective, this is a very negative trend."

Until recently, players in exploding markets like wireless or Internet broadband service have been too busy to pay much attention to churn. ”These companies were growing so quickly that their focus was on the land grab, on signing up as many people as possible," Kon said.

With growth now slowing, attention is shifting to customer turnover. And the numbers show why. Mercer estimates annual customer churn rates of 20 to 30 percent for cable and cellular companies, and 30 to 50 percent for dial-up Internet providers. Kon said a wireless company with 15 million subscribers paying an average of $50 a month could save $450 million a year by shaving its churn rate from 30 to 25 percent.

”At present, managers tend to rely on surveys of existing and departing customers to decide where to improve their service, while making palliative attempts to ‘rescue’ customers at the point when they actually try to leave," Kon wrote in a Mercer brief, coauthored by senior associate Tom Russell in London, which is set to be published this week. ”Neither approach offers a solution to churn or an accurate diagnosis of the root causes that make customers want to churn."

To get at root causes, Kon and Russell propose identifying ”churn occasions" when the quality of customer experience falls below a threshold relative to the competition or to expectations. Such triggers could be anything from a dropped cellphone call to a brochure by a cable rival offering a bundled package of services. Subscription-based companies must be able to anticipate and preempt such events by improving technology and readying new services for customers.

Mercer consultants also recommend studying customer perception and behavior — and offering ”customer save" programs tailored to personal patterns of use. ”What we’d advise is not to react to people who are about to leave, but to reward loyal customers before they even consider leaving," Kon said.

Some companies are taking such advice to heart. Sprint offers its wireless customers rebates of $130 to $170 on new handsets if their existing ones are at least 18 months old. It also contacts some subscribers who make relatively few calls to suggest they ”right-size" their calling plans. ”You sign up a customer, and you don’t forget about that customer afterward," said Sprint spokesman Mark Elliott.

Other consultants preach similar approaches. ”You have to understand the category drivers," said Robert Passikoff, president of Brand Keys Inc. in New York. ”If you can manage the brand toward meeting or exceeding the expectations people have, you’ll always win."

Robert Weisman can be reached at [email protected].
© Copyright 2004 Globe Newspaper Company.