3 Steps to Reduce Customer Churn

Customer loyalty – once the watch word of industries has become somewhat arcane in the electronic age. With the advent of the internet and on-line sourcing, customers have a lot more choices and in turn have turned less loyal to a single supply source. Regardless of the type of service – financial servcies, manufacturing, retail and hospitality, organizations are finding that in addition to acquisition of new customers, whom they hope will become loyal, retention of customers has become critical. Organisations now want to slow the rate of churn within their customer base.

Significant in the slowing of churn among the customer base is an understanding of the customer - why some customers stay, why some leave and even more important, why it is permissible to divest other customers from the brand.

According to a survey conducted in March 2011 - churn has increased and customers are choosing newer brands based mainly on perception, convenience and customer experience.

How can a CRM solution be used to create an effective retention model and reduce churn?
Analyze the reason for customer churn
First, organizations need to analyze the customer base by those who have left their organization for a competitor. Many times what moves a customer to a competitor isn’t always clear or understandable to the organization itself. Talking to the customers who have left – finding out what was the deciding factor and building that information into the CRM database can be the first step in putting an exit barrier in front of a valuable customer. In other words, don’t make the same mistake twice, understand what happened and prevent it from happening again.

Understand who is a valuable customer
Second, organizations need to understand who their most valuable customers are. There are mathematical measurements which CRM can apply to the customer profile. Products per customer, especially high margin products are just one measure. Measures of customer lifetime value, margin per customer and incremental revenue per customer are all critical factors in knowing who the customer is and the aggregate value in retention or dispersion of that customer. Knowing the lifetime value of a customer is projectable, based upon the data in the CRM base concerning the product basket the customer carries.

This information can also be used to prospect the database for those customers on the verge of becoming “most valuable” and identify those “least valuable” to the organization. The allocation of resources to those most valuable or most likely to become a valued customer provides not only a reduced attrition rate but an improved apportionment of retention dollars.

Communicate frequently with your customers
Third, organizations need to communicate with their valued customers. Communication can be by phone, mail email or in person. In some cases, this contact may be significant enough to keep a customer from leaving the organization. The CRM solution data should track the frequency and method of communication as well as the success or failure of that interaction in retaining the customer. In some cases less may be more; the CRM data should also identify those customers who request little or no contact.

These three principles – analyze, understand and communicate are the first steps in developing a retention model within the CRM solution data system. Application of these three principles to high valued customers will be the first step in understanding the segmentation of the organization's customer base along the positions of loyalty. It will enable the company to begin to identify those valued customers who are on the brink of leaving, allowing proactive churn management.