One of the greatest concerns of CRM managers is customer churn. In the CRM space, involuntary churn is not of much consequence. It is very rare that a service provider in the CRM space would voluntarily cut off a customer. But voluntary churn is giving relationship managers sleepless nights.
Customer churn is a common way of referring to lost customers. The telecommunications industry started using the term customer churn a few years ago and the term has now become a standard measurement yardstick for the entire service industry. Simply put, the term refers to the percentage derived by dividing deactivated or lost customers by total customers. Typical churn rates for larger service companies fall in the low single digits, and a 2% change in churn rate can realistically translate into six months of additional service per customer. So measuring churn rate and the factors that lead to customer churn can be critical to the health of a company. If you are like most companies, you probably know what your churn rate is, but do you know which key factors are affecting customer churn and to what degree?
An alarming factor in the last two years or so, is the spiraling churn rates. While churn was more or less static in the early stages of the service industry, it is growing by leaps and bounds now.
Customer churn rates are higher than ever, and businesses haven’t figured out how to stop the bleeding. New research points to the cause: although businesses say they are devoted to loyalty, their management systems and budgets don’t back that up.
Loyalty experts agree it is more cost effective to retain customers than to acquire them, but few companies have strong programmes in place. And those that do may be focusing on the wrong things. From a recent survey, we learned that even though more than 70% of customers say poor service caused them to take their business elsewhere, business managers believe price to be a prime factor for defection. In a landscape of similar products and global competition, cutting down on defection-or churn-and building loyalty can be a significant way to grow your business. For example, churn rates for mobile telecommunications companies in Great Britain average between 25% and 35%, according to Customer Value Management expert Graham Hill. At the low end is Virgin Mobile, with about 14% of its customers leaving annually. At the high end is T-Mobile, with a 34.8% churn rate.
Continue reading “The big CRM challenge: understanding churn”