With Valentine’s Day approaching, we have (customer) relationships on the brain. In a previous column, I discussed the
importance of converting one-time buyers into loyal repeat customers. Just as early lifecycle programs are crucial to increasing customer lifetime value, late lifecycle programs are, too. Setting up a robust churn prevention program is a great way to begin leveraging customer data to drive growth.
At Custora, my employer, we often use the personal relationship as a metaphor to talk about churn. There comes a point in all relationships where things start to veer off course and cool down. If we value these relationships (which hopefully we do), we take steps to find out what went wrong and how we can get the relationship back on track.
Why is churn prevention crucial?
You’ve probably heard me say it before — retention is the key to sustainable growth. The cost of acquiring a new customer has been quoted as anywhere from five to 25 times more than the cost of retaining an existing customer. Keeping your customers coming back is therefore crucial.
Not only is retention the cheaper strategy, but small improvements in retention can mean huge gains in profit. Research from Bain & Co. states that a 5 percent improvement in retention can lead to a a profit increase of 25 percent or more.
Here are three considerations for setting up a robust churn prevention program.
1. Think predictive and preventative
A common challenge among retailers is understanding when to reach out to fading customers. Unlike in subscription businesses, traditional retail customers don’t tell you once they’ve churned. So how do we know the right time to reach out? Because many retailers use promotions as an incentive to win back churning customers, reaching out at the wrong time with a promotional carrot could potentially hurt more than help.
Many retailers use a rule-based approach to churn prevention. Once a customer hits, for example, the 90-day mark without making a purchase, they are considered “churned.”
However, with advances in data science and predictive analytics, we can now anticipate the probability of each customer making a return purchase, based on their regular purchasing cadence. One customer might make a purchase every week, while another generally shops once every other month. We need to take this into consideration when determining who is beginning to show signs of churn.
2. Start with risk segmentation
We want to catch customers before they’ve churned or are considered “lost.” Using data science to predict their “probability of return score,” we can group customers into buckets — those beginning to show signs of churn, those likely to churn and those we consider already lost.
Marketers can then target these groups with different messaging. For example, a customer just beginning to show signs of fading away might receive a “We Miss You” email with no discount, but a customer considered “lost” might get a coupon in an effort to re-engage the relationship.
Once your team has successfully segmented based on probability of churn, you can always segment further. You may want to target your high-value customers with a specific message, or you may want to segment based upon customers’ affinities for certain categories and products.
3. Test one lever at a time
Retailers have tons of variables at their disposal to test — different offer amounts and types, different creative, various channels. If you’re like most retailers, however, you don’t have a team with enough resources to build that many creatives.
A great way to get started with churn prevention is to start broad: Send the same email to all customers, from those beginning to fade away to those considered lost.
Then, slowly begin testing different emails for each risk segment. As you begin to determine which emails are performing best, you can automate the process so that when new customers transition into each bucket, they automatically receive a triggered email.
Final thoughts
Churn prevention programs are one way for retailers to drive revenue from their existing customer base. With competition continually increasing and the dominance of Amazon still expanding, retaining customers is more crucial than ever.
By starting small and enlisting the help of a tech partner, setting up a churn prevention program is easy, and the rewards will be well worth it.
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