Painful truth about customer churn and a couple of ideas to ease your pain
People abandon your brand because you don’t deliver enough value to them. Period. It is the hard truth that is good to comprehend before you move on with the reading. Of course (to ease your restlessness), there are a couple of objective reasons why people stop buying your products or using your service, but all of them lead to one common root cause: they don’t see the value of doing business with you. On the extreme, maybe they feel even cheated or used by you, but if you are a good guy with good intentions, and see that people are still leaving you, below you will find some tips that ease your pain.
The fundamental question worth asking is “do they leave your brand or rather the category?” As an obvious example, we can take such product as diapers: the majority of the population needs them only at the very beginning and the very end of their lives. So, there is something like a natural churn—people naturally, at some stage, no longer need the category you offer. In the case of the diapers, the essential thing is to understand which parents stop buying your brand because their kid starts to have whole days with no potty accidents, and which switched for another option to pamper their bottoms. But, at some point, all parents will happily leave your category after a couple of months or years, so you should be focusing more on acquisition rather than retention.
The second question is how do you measure the churn? The market standard is to measure it on yearly cycles (as the proportion of customers or subscribers who leave your brand during one year). Having a common denominator helps to compare one brand to another and gives a good indicator for the stock market to assess your brand’s value. But it is probably not the best metric for you to track your performance on a daily basis. For your brand (or category), the typical cycle can be shorter or longer than one year. Imagine a bakery and compare it with a car dealer. If you own a bakery, you should start to worry after a couple of days of not seeing Mr Smith. But if the same Mr Smith comes back to you, as a car dealer, a couple of days after a car purchase, it will rather mean problems. The point is that your product life cycles are different, so you should measure them accordingly and react immediately if you see a broken pattern. Waiting till the end of the year, to find out who stayed, and who left you is a bad plan. The faster you react (the closer to the last interaction), the better results you may achieve, as people will still remember about you.
The third question is how do you define the churn. When exactly you can tell, that people abandoned your brand? Another market standard is to focus on the transactions as the only proof of customer loyalty and retention. Many people still interact and consider your brand, but for many different reasons are still not purchasing. Paraphrasing the heroine played by Julia Roberts in Notting Hill, they are also just a customer, standing in front of your brand, asking to be helped. Is that churn? At some point yes, as you don’t see the transaction. But the truth is that your customer still considers you as an option, knocking at your door. With growing technological capabilities, single view of the customer, you can probably read these signals better than Hugh. By better recognising which customers consider your brand, still yet not decided to buy, tracking the valuable interactions, understanding obstacles that customers face, you can close the loop and bring them back to your stores, reducing your churn and live happily ever after with them.
Maybe you bite too much to chew? We often visualise customer churn as a leaking bucket, with many scattered, bigger or smaller holes. Let’s focus on another visualisation: when your acquisition strategy is too aggressive, unbalanced and lacking proper retention and development actions, you get too many new random people on the top of the conversion funnel, and you are unable to convert them to its next stages. You clog the system, and, instead of losing people through the holes in the bucket, their abundancy turns out to be poisoned chalice. Long waiting hours on the call centre, queues in the cash line, constant product availability issues, and long lead times are the symptoms of this disease. As a result it reduces the customer journey only to two stages: from acquisition to disappointment. The more people hit the wall at the beginning (or, in other words, the lower the conversion rate is), the more people you need to reach to secure the scale at the further stages. Your acquisition strategy becomes even more aggressive, most expensive and you spend more and more money on getting the new one to the bucket, where you could reinvest it to secure customer retention.
And fifth, last but not least: Do you know who you acquire?
In general, churn starts during the acquisition process, and it is not only about the volumes you can handle. Out of all the people that you can reach, not all of them have the same propensity to buy, and the odds that all of them will stay with you, are sometimes minimal. The hard truth is that customers are different also from the point of the business value that they bring to your company. There is always cost attached to the relation with customers, and keeping the customers for any price, focusing on the wrong segment, can ruin your business. Like in real life, you should know, in which relation you want to invest and which one is worth it. It is a typical rookie mistake for new brands, but this also happens often in mature businesses, following the thinking “let’s build the base first, and we’ll see what happens next”. The problem is that when you are net fishing, this technique is too broad, and you will get a lot of salmons and tunas, but also a lot of herrings (including the black ones). It hits you back twice: it increases the acquisition costs (even if it may look good on the CPC rate) and causes the retention and development costs to skyrocket. It means that it is worth being picky in your acquisition strategy—not all consumers are good prospects to become your customer. On the opposite, some consumers are great prospects to become your detractor. Forcing the relationship is a great way to frustrate both sides (you invest a lot, they are still unhappy). It can sound soulless, but you should know the expected return from the investment per a potential new customer and what are the thresholds beyond which the investment is not worth your engagement. Setting the bar as low as possible (and keeping it there) is another story, but understanding that you can’t afford all customers is crucial. Sometimes it is simply better to leave them aside.
Why do people quit your brand? It is because the mismatched product range, poor service, bad prices and quality, low brand perception (mental availability)… Or you’re just hard to reach (physical availability). The good news is that it is all in your control so you can fix it all. With every churned customer you get the opportunity to better understand the real customer problems and take action upon them. Going back to our leaking bucket metaphor—customer churn gives you feedback on where the biggest holes are placed and which holes you will find the easiest to fix. By analysing it not only from quantitative (how many), but also from the qualitative perspective, you can understand the “why it’s happening?”. Imagine, how powerful this knowledge is—you’ll understand the barrier you need to fix (qualitative study) and the scale (quantitative–how many people, what value you were losing). It is an almost ready-to-use business case you present to your board. And I guarantee you, you will be listened.