Customer churn

Arguably, customer retention is both one of the cornerstones of any CRM system, as well as being the most important component of the customer lifetime value (CLV) framework. There are indications that companies have problems managing customer retention. Airlines are unique from many other industries in that their customers are tied into contracts, but many of the retention metrics relevant for contractual firms are also relevant for non-contractual firms. A simple 0/1 indicator of transaction, and a measure of recency are appropriate for both types of companies. 

Intelligencia proposes the following process to develop and evaluate a single retention campaign:

1.       Identify customers who are at risk of not being retained.

2.       Diagnose why each customer is at risk.

3.       Decide when to target these customers and with what incentive and/or action.

4.       Implement the campaign and evaluate it.

These steps are applicable to both proactive and reactive campaigns. Reactive campaigns are simpler because the firm doesn’t need to identify who is at risk—the customer who calls to cancel self-identifies. ‘Rescue rates’ can readily be calculated to evaluate the program, and subsequent behavior can be monitored. The incentive should be substantial because the company is pretty certain the customer will churn. Reactive campaigns, however, can be challenging because not all customers can be rescued, and, because we’re dealing with human nature here, customers learn that informing the firm about their intentions to churn can be richly rewarded with valuable incentive, which can endanger the long-run sustainability of reactive churn management.