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Smart churn management: How to keep valuable customers on board

The Drum 17 Mar 2020 02:00
By Patrick Headley-17 March 2020 14:00pm

The marketing sector can be a complicated place as new marketing tools and techniques are launched, almost on a weekly basis. Powered by The Drum Network, this regular column invites The Drum Network's members to demystify the marketing trade and offer expert insight and opinion on what is happening in the marketing industry today that can help your business tomorrow.

Go Inspire Group on how to establish a sufficient smart churn management system to get suitable customer churn.

The importance of churn management

For every business, customer churn is one of the most important factors affecting revenue and growth, and this is why it must always remain at the top of the corporate agenda. Even if revenues are rising, churn rates can reveal an underlying decline in profit-per-customer – an essential measure of business productivity and marketing return-on-investment. There are numerous factors which may affect how the market develops and they are often interdependent: new technologies, innovative business models, changing expectations across generations, to name a few. During unstable periods, businesses can expect to contend with disruption to supply chains, panic buying by consumers or a reduced interest in non-essential goods and services. A lack of deep insight into the customer base, who is churning, and why, will be detrimental to customer retention and profitability in the longer-term.

Churn tends to fall into two tiers. The first tier encompasses sectors providing essential products or services where consumers tend to have one exclusive (or at least one principal) relationship with a single supplier. Supermarkets, banks, insurers, utility companies, mobile phone providers and broadband providers fall into this category.

For these sectors where churn rates are high, investing in effective churn management has the potential to produce very significant return – more than for lower churn industries. Nevertheless, in lower-churn sectors, which should theoretically be experiencing stable churn rates, our research found that rates are going up – notably among supermarkets, motor insurance companies and gas providers – suggesting that these industries could also benefit from revisiting their churn management strategies.

A smart churn management strategy is typically based on a high-functioning loyalty programme. Loyalty schemes which link customers to transactions provide a basic database to analyse purchasing and subsequently build a strategy around these data insights.

Nurturing high-loyal high-value customer relationships makes a disproportionately positive and productive contribution to long-term business value. Though rewarding loyalty may demand a greater investment in intelligence and expertise, it provides a better and more sustainable return on investment than blanket introductory offers.

Collating data from loyalty programmes also enables the identification of lookalike customers that could be encouraged to grow and move up into the high-loyal and high-value category, which is significantly more profitable in the long-term. Analysing data over time will reveal the stages that customers typically go through before becoming high-value high-loyal, as well as the typical profiles and behaviours of customers who have the greatest potential to occupy this category.

Measuring what matters

Conclusions

Smart churn management is therefore an optimal combination of data collection and monitoring, rewarding the most loyal customers, and recognising potentially high-profit futures. The first priority must always be to hold on to those high-value high-loyal customers who tend to make a disproportionately high contribution to profits.

Click here to download a copy of the Go Inspire Group 2020 churn research – ‘Staying Power’ report.

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Patrick HeadleyGo Inspire GroupThoughtSpark