Are You Back for Good or Still Shopping Around? Predicting Customer Churn
With switching costs becoming progressively lower, customers in mature service industries tend to churn repeatedly, switching from one provider to the next. In turn, companies extend attractive promotional offers to win them back — until the next best offer lures them away.
After the successful reacquisition of a customer, managers need to understand the renewed relationship with their customers in order to fortify their retention strategies. In this environment, managers need to know when and why a customer will churn – and sometimes, repeatedly.
Our research team at the Center for Excellence in Brand and Customer Management (CEBCM) developed a sophisticated statistical model to examine customers’ repeat churn behavior using customer data from a large telecommunications provider.
In evaluating a customer’s relationship with a business, the re-initiated customer relationship is called a customer’s second lifetime (SLT) behavior, and it is different from the customer’s first lifetime (FLT) behavior, which is the relationship before the customer first churned.
We predicted when and why customers will terminate their second lifetime, accounting for the impact of both the customer’s and the company’s actions during the first and second lifetime.
We found that customers’ defection motives change over time. The reasons for FLT and SLT churn are generally different, and the time of such churn differs as well. Amid this uncertainty, how can managers prevent a customer from churning again?
The answer? Reach out to customers. Send them emails, call them and even send them direct mailings. More frequent firm-initiated contacts are common among customers who stay longer, increasing their lifetime profitability by $11-18 with each single contact, up to a certain threshold.
Managers in industries involving contracts with customers need to track in real time which customers are at risk of churning again, as well as when, and why. By tracking these factors, managers can build proactive retention strategies to intervene at the right time in their SLT.
Is everyone expected to churn again? The short answer is yes. However, we found that some customers are unlikely to leave for the same reason if the company repaired the issues that caused the FLT churn. This is especially true in the case of service issues that lead to defection.
From this, we found that there are two types of returning customers: those who can defect due to any reason (“uncured” customers) and those who are susceptible to fewer types of churn (“cured” customers). How can managers identify who is more likely to belong to the cured group?
Information from the customer’s FLT can help answer this. We found that customers with a longer FLT relationship and higher FLT revenues are more likely to be in this group. This also holds true for customers who received a win-back offer with multiple benefits as an incentive to re-initiate their contract.
Equipped with this knowledge, managers can recognize which returning customers have a high potential of becoming long-term customers, segment them accordingly and target the look-alikes in the future to win back long-lasting customers.
The research article will be published in 2018 in the Journal of Marketing Research, under the citation: Kumar, V., A. Leszkiewicz, & A. Herbst (2018). Are You Back for Good or Still Shopping Around? Investigating Customers’ Repeat Churn Behavior.
V. Kumar is a Regents Professor and executive director for the Center for Excellence in Brand and Customer Management (CEBCM) in the Robinson College of Business. Agata Leszkiewicz is a visiting scholar in the CEBCM in the Robinson College of Business. Angeliki Christodoulopoulou Herbst is a Ph.D. candidate in marketing at the J. Mack Robinson College of Business at Georgia State University.