Article Type: Loyalty program strategy
Published: March 9, 2023
Reading Time: 5 mins
Customer churn is a critical challenge that varies significantly by industry and transaction frequency. Understanding your churn problem requires defining what churn means for your business, setting appropriate expectations based on your program maturity, and implementing data-driven prevention strategies. This article explores how to assess your churn problem, identify early warning signs, and execute effective churn prevention campaigns that deliver exceptional ROI.
The definition of churn can vary enormously by industry and transaction frequency. Once you define your churn, before you set targets and compare to industry benchmarks, reflect on your core business KPIs and the maturity of your program.
If your program is only 1 to 3 years old, your business objective likely is to attract new customers into the program, and therefore, grow your base. As new customers are more likely to churn versus existing customers, your churn rate will naturally be higher.
High Frequency Industries (Banking/Credit Cards):
Lower Frequency Industries (Health & Beauty or Retail):
This data illustrates the need to determine your churn definition based on your industry and likely frequency of transaction. A slower moving industry may not expect to see customers returning more than once per year if their replenishment cycle is, as an example, every 12 to 18 months.
In most industries, there are typical "warning signs" of churn. 61.8% of customers show signs of decline before dropping off completely.
If you don't have an analytics team or the funds to justify outsourcing a churn model exercise, you can still build trigger-based campaigns that work off business rules rather than machine learning algorithms. Reactive, trigger-based campaigns will not be as effective as predictive based campaigns but will still yield positive results and ROIs.
The best option, however, is to predict and prevent churn. Funnily enough, this is the easy bit. Any data scientist can build an algorithmic model that will predict which customers are most likely to churn in the upcoming period, but what do you do next? Two additional steps are recommended:
Build a value segmentation. This will allow you to differentiate your offer generosity within the campaign to ensure the best customers (who are likely to churn) are getting the highest possible incentive to stick around and continue spending.
You could go on to build a behavioral segmentation, market basket analysis or next best offer model to understand what product to offer in the prevention campaign. However, as you are simply trying to encourage your customers to continue to purchase, it's in your best interest to keep the offer broad rather than restrictive.
The next thing to do is to build a safety net. Even an exceptionally accurate churn model will not predict every customer who is likely to churn, so to give yourself every opportunity to keep your customers engaged in your brand, you can build a fairly simplistic secondary campaign.
This secondary campaign targets those customers who are inactive for a defined period of time, despite being or not being targeted via the churn model campaign(s). The defined period can be determined to ensure you are:
Now that we know which customers to target and which will receive a better, more generous offer to encourage further engagement, it's then all about how you execute the campaign.
The model is only as strong as the campaign that follows.
You need to get your messaging correct, your creative memorable, your timing spot-on and your offer attractive. Just as importantly, you need to test and learn to determine what works and what doesn't and how to leverage the results for ongoing success.
At Kognitiv, numerous clients have improved their churn and retention rates when they utilize the SmartJourney® methodology. Here are two examples:
Challenge:
Solution: Kognitiv designed data-driven test & learn campaigns off the back of a churn prevention model.
Results: Two test & learn campaigns executed over two independent periods resulted in:
Ongoing Impact: Based on the success of the test and learn exercise, Kognitiv executes monthly churn prevention campaigns for this CPG brand, which continue to drive incremental value and keep the churn rate low.
Data source: Based on internal Kognitiv data from 2017 – 2018
Solution: After building a churn model and going through a test & learn exercise, monthly ongoing churn prevention campaigns were implemented, including the second-touch safety net discussed above.
Results:
Data source: Based on Kognitiv data from 2018
Assess your churn problem by determining your churn definition based on your industry and maturity of program. By analyzing your new and existing customers' behavior, you may find that your issue is primarily with your new customers and hence better on-boarding and cultivation activities are required.
Churn prevention campaigns, done well, will always generate the highest ROIs amongst all your BTL (below-the-line) activities. This is simply because "all spend is incremental spend."
Personalization, as with any communication, is key. However, don't restrict your chance of a response by limiting or narrowing the offer to certain products or categories when your primary objective is any transactional spend. Be as broad as possible whilst still showing your customer that you know them and you know what they like.
Kognitiv Corporation provides AI/ML-powered loyalty and customer engagement solutions that maximize customer lifetime value. The company's SmartJourney® methodology helps brands improve churn and retention rates through data-driven campaigns and predictive analytics.
Article Author: Communications Team
Original Publication Date: April 30, 2019
Last Updated: March 9, 2023
Contact: [email protected]