Discover the Top Reasons for Customer Churn
Customer churn is a growing problem across many industries and managing it has become critically important to maintaining profitability. With the global average value of a lost customer estimated to be $243, focusing efforts on improving customer retention and understanding the top reasons for customer churn is critical to help companies control attrition – estimated to cause total losses of $1.6 trillion per year.
Research indicates that the cost of acquiring a new customer can be as much as five to seven times higher than keeping an existing one. For that reason, successful retention activities encompass multiple strategies, tools and technologies, all geared toward winning the hearts and minds of customers.
Why do customers churn?
It’s important to keep in mind that not all churning customers are the same. Customers cancel contracts for different reasons, and those varying motivations must be considered when planning retention strategies to ensure that they are effective in targeting all customer types. The three most likely groups of customers to churn can be defined as dissatisfied, vulnerable and disengaged:
- Dissatisfied – customers who are unhappy with the company’s products or services
- Vulnerable – customers who are waiting for a better offer
- Disengaged – customers who do not fully use the company’s products or services
Group 1: Dissatisfied customers
Dissatisfied customers are those who feel a business did not provide a product or service as expected. Beyond the loss of their business, these customers present a threat as they could negatively influence others, especially in the era of social media.
A recent survey revealed that 76% of customers who churned after experiencing poor service admitted sharing their disappointment with others. 70% discussed the company negatively with friends, family or colleagues, 18% shared it on their social media channels, 12% posted on the company’s official social media channel or website, and 4% even discussed it with the media.
Can these customer retention and churn management strategies help?
To retain these customers, the ideal approach is to address their issue directly, either privately or publicly. For example, when a Delta Airlines flight was significantly delayed due to severe weather, the airline bought pizza for the passengers and encouraged them to share the experience on social media.
Companies should empower employees to react appropriately to a dissatisfied customer by authorizing them to resolve a range of problems on the spot to avoid escalation.
At the same time, companies should invest in proactive strategies to minimize customer dissatisfaction, such as collecting honest customer feedback and carrying out subsequent data analysis to help determine whether the issue is a recurring one, and if so, look for the root cause and fix it.
Read this article to find out more about customer retention strategies.
Group 2: Vulnerable customers
Vulnerable customers are those who would not hesitate to move to a competitor if offered a better deal. This high-risk group is relevant across multiple industries as one third of all customers have zero brand preference. This means they can be easily seduced by a superior offering. If a company originally lured a customer away from a rival with an effective promotion, that customer can be considered vulnerable as they have already demonstrated their disloyalty.
To enhance retention, it’s necessary to identify key points in the customer journey when this group is most likely to churn and to proactively engage them with incentives or other marketing tactics.
Explore why customers churn with these day-to-day examples
There are a number of possible scenarios why customers churn within this vulnerable group such as:
- the end of a vehicle lease, which means a new car insurance policy is inevitable
- an expiring telecom contract, which will often lead a customer to search for new deals
- a move to a new home, which will probably involve a new cable package
- life transitions such as marriages, births, and divorces which introduce new customer vulnerabilities as well as opportunities to retain them.
Increasing personalization efforts, finding ways to emotionally connect with customers and onboarding connected products and services are effective strategies that create sticky relationships and boost customer retention and churn management of this customer group.
Group 3: Disengaged customers
Disengaged customers are those who do not regularly utilize a company’s products or services, or no longer find the organization relevant to their lives. They are usually difficult to detect because they often have not had a negative experience; they have just become inactive and have fallen off the radar.
A major investigation of top reasons for customer churn found that many respondents churned passively, without actively looking for an alternative. They simply heard about or were offered a better deal from a competitor. However, a disengaged customer doesn’t have to become a lost customer.
How to catch disengaged customers before they churn
Retaining this group means catching them at just the right time. For example, retention-focused emails can be sent to encourage better engagement, by highlighting benefits or explaining underused features. Harvard Business Review reports that providing customers with short tutorials on product features can reduce churn by 6%.
Other retention methods include checking that the customer has achieved their goal when engaging with the company’s product or service.
Proven customer retention strategies include:
- promoting regular use of products or services through personalization
- providing ongoing reminders and rewards
- surprising customers with an unexpected benefit
- engaging them with additional products or services.
Read this article for further explanation of strategies for customer retention and churn management.
Brands that understand these reasons for customer churn will effectively incorporate customized experiences into the customer journey. According to a Forbes report, these brands experience greater returns and higher retention rates.
Know why customers churn, to help improve retention rates
Considering the high costs of customer acquisition, businesses have learned to increase their focus on their most valuable assets – their customers. Companies must:
- understand top reasons for customer churn
- identify those who are on the verge of defecting
- proactively respond with retention tactics to reduce attrition
Tailoring retention strategies to the unique needs and considerations of the three key groups of customers most likely to churn – the dissatisfied, the vulnerable and the disengaged – helps deepen relationships and reduces the likelihood of customers jumping ship. To learn more about how you can improve customer retention rates, click here.