Regardless of what industry you are in, B2B, B2C, Retail, Banking, FMCG, big business or small, customer churn (or attrition) is
the leak in the dam. It could be a trickle or a rushing flood.
With either possibility, it requires your attention.
So, what is the definition of customer churn? Customer churn can be best defined as direct or indirect actions by customers to end a
relationship with a given business. This can be obvious when it relates to closing an account or ending a subscription, but customer
churn can also be indirect via dormancy (no longer transacting or engaging). Dormancy rate is rarely included in customer churn rate
results. Which is counterproductive considering they are also indicators of churn.
Any successful business will have a challenge with customer churn rate. It is a part of the customer lifecycle. Customer needs change:
they may be no longer in the market for your product or service or have discovered a more compelling offer with a competitor.
5% improvement in your retention rate will increase profits by 20-95% [Harvard].
Most businesses start solving the problem of a high churn rate when a customer is asking to leave. Leveraging CRM practices to offer
discounts and incentives to stay, attempting to influence customer behaviour at the last possible moment.
While this can be somewhat successful, it generally works for only a select segment of customers of a business, those influenced by
price, and the customers who deem the relationship a transaction. A higher number of customers will still leave, placing pressure on
operating costs and pressure to suck more value from the loyal customers who stay.
And herein lies the problem with most customer retention efforts. They are solving the wrong problem.
Customer churn is a symptomatic problem generally derived from a lack of engagement and unfulfilled customer needs.
By the time they reach the point of asking to leave, the damage is done, and they have already decided this relationship is no longer of
value. Trying to solve the problem at this stage of the customer lifecycle is counterproductive because you pay them to stay, not
because they genuinely want to stay. The customer will now focus on promotional offers rather than service, which shifts the behaviour
of internal customers. Over a given time period, these customers will still head to the door. In the initial period the loss of
disappointed customers could be deemed a good thing.
You may improve your Net Promoter Score in the short term. But a high churn rate will cause undue pressure on the acquisition of new
customers, could sabotage your growth rate, and creates a high risk of missing total revenue targets. Your rate of attrition is an issue
born out of customer experiences that directs customers towards the exit.
The best option would be to engineer experiences, transform customer relationships, increase customer loyalty, and focus on complete
churn rate (including dormancy).
Reducing a customer churn rate isn’t that difficult; successful companies consider customer churn from the onset of acquiring new
customers. They have a business model built around the number of new customers, customer acquisition costs, engagement, churn rate, net
growth rate, and total revenue.
To achieve this level of capability, we have listed the five most common customer breaks which are often overlooked or deemed of little
importance to the broader customer journey.
Consider the five breaks that cause customer churn
-
The customer is unhappy with a specific service event
92% of consumers say that they will stop purchasing from a company after 3 poor customer experiences [Hubspot].
While being obvious, it is generally the most overlooked. Where only one in 25 will complain about a poor service, a
whopping 24 will either reduce their interaction with your business or leave it entirely.Customer complaint data is generally not captured appropriately, and if it is, rarely given the attention it deserves.
Customer complaint data can provide extensive insights into service breaks, communication issues, poor CRM practices, and
process gaps. -
There is friction in the customer service journey
95% of customers say that customer service is important for brand loyalty. [Microsoft]
The customer relationship with the business can be viewed as a journey with key touchpoints that correspond to interactions,
experience, and decisions. Companies generally view this from a process perspective, disregarding the needs and experience
of the customer.This can result in misidentified friction points, points in the customer journey where communication is infrequent,
interactions that are complicated, and unmet service expectations. -
Customers have no genuine relationship with the business
75% of customers prefer human interaction compared to an automated experience. [PWC]
If the customer relationship is highly transactional, lacks human interaction, and is not personalised, a business should
expect customer loyalty will be short-term.A relationship that lacks depth is likely to be highly influenced by external factors, resulting in an ongoing churn
problem. Identifying ways to extend and personalise the relationship is the key to building some depth to the customer
experience. -
Imbalanced engagement
Effective engagement can generate 40% more revenue per customer. [Brain and company]
Customers communicate all the time; they interact with your channels, make purchasing decisions, provide information, and
respond to intervention.An organisation’s ability to leverage this data to understand and react accordingly to their needs determines how effective
they are at customer engagement. Not being responsive, or even over engaging without context, typically though excessive CRM
communication practices can lead to disengagement. -
Unmet needs
Two factors can impact unmet needs. There is a deviation between the proposition of a product or service offering to the
experience (oversold), or there are gaps in the product /service provision that the customer can acquire from alternative
sources.Unmet customer needs are a prevalent problem. Organisations make assumptions about what a customer needs and rarely take the
effort to unlock the actual complete wants of a customer. From a financial standpoint, unmet customer needs may
significantly impact the customer lifetime value, directly impacting the bottom line.A recent article on Forbes by Jon Picoult suggests looking for a specific phrase in customer interactions that can help reveal unmet customer needs.
Can you see a pattern here?
The blessing of each of these five breaks is that they are internally solvable. Your business needs to take more consideration of the
day-to-day customer interactions, consider the full extent of the customer journey, and acknowledge that customer behaviour deviations
are alarm bells that may need addressing.
By taking a proactive approach to customer retention via quality engagement, you will not only reduce the customer attrition rate but
ensure retention efforts are addressed at the right interaction points rather than when a customer is already walking out the door.
Customer Crunch recommends several ways to tackle customer churn; we have listed some of the best in our second part on customer churn, the three best approaches to tackling customer churn.
Take the time to review and consider which actions you could take today to resolve customer churn in your business.