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Ken Powaga is the Senior Vice President at GfK Custom Research North America. He joined GfK in 1982 and established a practice to meet the special needs of business-to-business clients. Ken currently is in charge of product development for GfK’s customer loyalty practice. He has broad sales and account management experience establishing long running customer satisfaction programs for clients in the high tech, retail and financial services industries.
At NACCM Customers 1st, you’re talking about customer churn, can you elaborate on what that is and how your topic will impact our attendees businesses if applied.
Ken: We look at customer churn as the opposite of customer loyalty. When you have loyal customers, you’re continuing to sell to the same customers over and over again and building strong relationships. Churn on the other hand, you’re getting new customers that are replacing a lot of old customers who leave. Today the common belief is that customer churn is a necessary fact of life in the tough business climate that we’re in today. And it seems that most businesses treat customer churn only as a numbers game and believe that if you have more new customers coming in than are leaving, all will be fine. However, it’s not the quantity of the churn you should be concerned with, but the quality. Loss of a single good customer that’s highly profitable may not be compensated by acquiring ten marginally profitable new customers. On the opposite side, not all churn is bad churn. If you lose a lot of marginally profitable customers, and replace them with some strong, high value customers, things will be better.
What are some of the most common reasons companies lose customers?
Ken: Well, customers come and go for a variety of reasons. Some are controllable and some are not. You may gain customers by luring away them from competition who are satisfied with your competitors. But you may also lose satisfied customers who are lured away by your competitors promises. You may also lose customers from dissatisfaction and your failure to provide them what they expect. But then again, you can gain customers who are dissatisfied with your competitors performance. Another reason that customers leave is because they may not need the products or services in your category. But then again, you may gain some customers because of technology who are totally new to your product and service category.
What is the best way to measure customer churn?
Ken: With churn, you need to measure both lost and new customers. And it needs to be both objective and quantifiable measures that can be both managed and controlled profitably. The easy way to do it is not necessarily the best. And that is just simply asking some open ended questions of customers who left, and to ask them the reasons why they left. We found that this doesn’t get to the detail required to manage the churn because you receive expected, politically correct answers instead of a clear understanding of the things that cause change. So what you need to do is you need to have clear, objective measurements of customers who are coming and customers who are leaving. You need to measure their profitability and value to you. You need to measure their experiences and attitudes.
Then what you need to do is to segment both the new and lost customers into complimentary groups based on the reasons for switching, leaving or adopting your products. These segments would include lost customers who are driven away due to dissatisfaction versus new customers who are gained because competitors drove them away by not meeting their needs. It would also include lost customer lured away by competitors due to price cutting or other perceived product services or advantages. The third category would be those who churn based on industry dynamics. Either customer new to the category or those who left the category for a variety of reasons would be in this category.
After you quantify this how can companies use this info to make their business better?
Ken: They need to prioritize and fund customer retention and acquisition strategies based on the results. The first strategy is to fix any product or service problems that are driving the most valuable customers away. This will put a finger in the dyke to stop losing valuable customers. The second thing will be to develop win back strategies for valuable customers who were lured away by competition. This may include coming up with new products or figuring out what are the service aspects that customers are leaving to competitors for. Then the third thing you can do is to promote the products and services advantages to the customers who were driven away by your competition. And finally, you need to strengthen and expand programs that you have been successful in luring profitable customers away from your competitors.