Customer Risk, Churn, and Successful WinBackMichael Lowenstein, PhD CMC

Senior Vice President and Senior Consultant

Stakeholder Relationship Consulting CoE

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© Harris Interactive

The Business Issue

Deteriorating global economic conditionsDeteriorating global economic conditions

Commodity markets with comparable products, pricing and services

Commodity markets with comparable products, pricing and services

Fierce competition pressures both

globally and locally

Fierce competition pressures both

globally and locally

Organizations Today Are Facing Rapidly Changing Market Dynamics

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Quick dissemination of information, new social

and digital networks

Quick dissemination of information, new social

and digital networks

Significant shift in public and government view of

corporations

Significant shift in public and government view of

corporations

Consequently, key stakeholders to any

organization are becoming more

empowered, more sophisticated, and growing in number

“Successful companies are those where the brand promise is

matched by the stakeholders’ experience”

Line of Sight Between…..

• Transactional customer touch points; both KPMs and relationship components

• Longitudinal customer experience and overall perceived value• Creators of risk• Drivers of churn; final factors• Opportunities for customer recovery/winback

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“Execution is the main reason why companies fall short of their promises”

Execution – Aligning the brand promise and the customer experience,

and synchronizing strategy, people, and operations

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… and linking strategic value delivery planning with implementation

Identifying the customer “line of sight”…Identifying the customer “line of sight”…

Seven S Customer-Focused Direction

Structure Systems

Strategy StyleSharedValues

Skills Staff

Customer Churn

Unprecedented time of customer turnover around the world. Churn at epidemic levels*

Most companies lose 10% - 40% of customers each year*

ONLINE – McKinsey/ePeformance reports 98.7% of online visitors do not become repeat customers. Most sites lose 60% of first-time customers in six weeks*

OFFLINE – Mobius Management Systems, Rye, NY reports 60% of consumers cancelled accounts with banks due to poor service; 35% - 40% changed insurance providers, telephone companies, credit cards, ISPs*

* from Customer WinBack, Jill Griffin and Michael Lowenstein

Are Companies Paying Attention?

Do you conduct defection interviewsamong lost customers?

B-to-B, Sales/Marketing Managers and Purchasing Agents*

Do you know how many customersyou lose per year?

“No”

48% 30%20%

MARKETINGMANAGERS

SALESMANAGERS

40%

60%

80%

100%

0%

“No”

47% 43%20%

MARKETINGMANAGERS

SALESMANAGERS

40%

60%

80%

100%

0%

* from Customer WinBack, Jill Griffin and Michael Lowenstein

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Purchasing Agents’ Results*

• Commodity vs. Customer Orientation: 43% of Purchasing Agents said suppliers were customer-oriented vs. 73% of Sales Managers and 71% of Marketing Managers who gave that answer

• Much lower ratings than Sales or Marketing Managers on “Rapport/Relationship With Supplier”, “Speed of Follow-Up”, and “Proactive Communication”

*from Customer WinBack, Jill Griffin and Michael Lowenstein

“Suppliers are customer oriented.”

43%20%

PURCHASINGAGENTS

SALESMANAGERS

40%

60%

80%

100%

0%MARKETINGMANAGERS

73% 71%

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Perceptual Gap ProfilePurchasing Agents vs. Sales Mgmt vs. Marketing Mgmt

* Based on % high (5) performance ratings on a 5-point scale

1. Consistent product/service quality

2. On-time performance/delivery

3. Knowledge of needs & requirements

4. Proactive communication

5. Speed of follow-up: requests/inquiries

6. Accurate billing

7. Competitive pricing

8. Quick, responsive problem solving

9. Accessibility of supplier contact/service staff

10. Attention to details

11. Rapport/relationship with supplier

12. Knowledge/expertise of supplier contact staff

13. Value-added service support

14. Ability to anticipate your needs

15. Dependability of supplier contact staff

16. Flexibility and adaptability of supplier

17. Availability of multiple communication channels with supplier

18. Availability of multiple purchase channels

PURCHASING AGENTS

SALES MANAGEMENT

MARKETING MGMNT

0% 10% 20% 30% 40% 50% 60% 70%

High Performance*

Risk of Loss Often As Serious

Retail Banking Example

Value of Share of

Deposits Customers

Year 1 Deposit Val. 100% 100%

Loss/Defection -3% 5%

Loss/Reduced Bal. -24% 35%

Gain/Increased Bal. +25% 35%

Year 2 Deposit Val. 98%

Source: McKinsey Consulting Study

– Intentionally pushed away – Unintentionally pushed away– Pulled away– Bought away– Gone out of business

• Customers defect for numerous reasons: Unmet expectations, low perceived value, competitive attraction, unexpressed and unresolved complaints

• Winning back customers can be a rich source of renewed revenue and customer loyalty. A customer’s second lifetime value can be significantly greater than his/her ‘first life’ value.

• Lost customers can create exponential damage to future financials through viral, negative, word-of-mouth.

Causes/Effects of Risk and Churn

Our Clients’ Questions…..

What are stakeholders’ relationship needs?

How well do we and our competitors meet them?

How well are we delivering on customer needs and touchpoint

experiences?

Are our employees committed to the

organization and are they managed to deliver

the desired customer experiences?

How can we prevent customers from

churning?

If they leave, how do we win them back?

What experiences do customers require at

each service touchpoint?

…..Matched by Our Service Offerings

Customer Experience Monitoring

Employee Commitment &

Ambassadorship

Churn & Winback

Touchpoint Experience

Design

Stakeholder RelationshipAssessment

Linking to Financial & Process

Impact

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Risk, Churn & WinBack Overview

Our Service Offerings

Churn & Winback

Identifies which customers are leaving and why, who is at risk and develops proactive

strategies to avert churn and offers to winback churned

customers

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How to identify the high percentage of their customers

who are at risk and may defect

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At-Risk Customer Behaviors

1. Approval comes slower

2. Access to decision maker decreases

3. Slow in paying invoices

4. Plans for future work more short-term

5. Stops using one or more of your services

6. Reduces spending

7. Expressed/unresolved or unexpressed complaints

Source: Customer Loyalty: How to Earn It, How to Keep It by Jill Griffin

We have a 3-phase approach to addressing customer churn and winback that involves a 360 degree perspective on the issues.

Phase I – Qualitative Research– In-depth interviews with lost customers to identify the continuum of issues affecting

churn– In-depth interviews with employees to understand internal issues related to churn and

to generate hypotheses to test in quantitative research

Phase II – Quantitative Research– Identify reasons for churn by customer segment (i.e., immediate triggers, longer term

motivators)– Assess ‘save’ opportunities and likelihood to return to Client– Identify Existing Customers who are at-risk for defection or reduced spend

Phase III – Action Workshop

Our Approach

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Value is About Much More Than Money

• What is required to obtain benefits and solutions?• The Kano Model – approach to understanding value received at

touch points and experiences– Expected – Failure to deliver will result in likely defection

– One Dimensional – Desired core, standards of competitors

– Attractive/Surprising – Positive and unanticipated

VALUE = Customer-perceived tangible (functional/rational) and intangible (emotional/relationship) benefits supplied

+ Solutionsprovided

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Kano Model

Effects of Experience on Potential Influence and Advocacy

DELIGHT

NEUTRAL

DISSATISFACTION

Cu

sto

me

r S

atis

fact

ion

Characteristic Presence

Ab

sen

t

Fu

lfille

d

Perform

ance – M

ore Is

Bette

r

Basic “Musts”

Unknown Needs – Delighters

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Complaint Inventory:Iceberg in a Reservoir Model

POTENTIALLYEXPRESSED

UNEXPRESSEDCOMPLAINTS

EX

PR

ES

SE

DE

XP

RE

SS

ED

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One Company’s Complaint Findings

Major Midwest Bank Corporation

Implementing Churn & WinBack Investigation

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Lost & Current Stakeholders

Triggers for churn Importance of performance attributes Ratings of client/competitors on these performance attributes Likelihood of returning What client could do to winback Word-of-mouth behaviors

MaxDiff Scaling Predictive Churn Model or Swing Voter Analysis

Maximum Difference Scaling (MaxDiff)

Used to identify the differences between current and lost customers. It does this by prioritizing customer needs between the two groups. A “max-diff” analysis has two elements:

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A set of comparison questions (tasks)

that elicit preferences

A statistical technique for analyzing

the results

I am going to read six groups of possible characteristics that a telecommunications company may have. For each group of three, please select which is more important to you, and which isleast important.    Attribute AttributeI Like Least I Like Most

__ Short hold times for Technical Support __ __ Competitive prices ____ Easy to navigate IVR __

__ Competitive prices ____ No contract ____ Fast Internet uploads and downloads __

Relative Importance of Issues

0 20 40 60 80 100 120 140 160

Internet service with few interuptions

Being kept informed of new services

No contract

Fast Internet uploads/downloads

Easy to navigate IVR

Regular status updates on open tech …

Competitive prices

Short hold time for tech supportMostImportant

LeastImportant

Churn Likelihood Model Identifies the combinations of events and/or customer characteristics that are

most likely to cause customers to churn. It does this by identifying the combinations of performance factors that create

churn propensity, drive customers away or drop services, and which of these combinations do the most damage.

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Total Sample35% Churned

<10 Employees70% Churned

OldestChild <1275% Loyal

Oldest Child 12+80% Loyal

Field Services31% Dropped TELUS

Professional Services

51% Dropped TELUS

Had Contact via Rep22% Churned

Had Contact viaDirect Mail Offer

43% Churned

Had Service Problem

38% Dropped TELUS12% Dropped TELUS

Week

Field Services31% Dropped TELUS

Had Service Problem

38% Dropped TELUS12% Dropped TELUS

Professional Services

51% Churned

Field Services28% Churned

10> Employees30% Churned

Had Service Problem

38% Churned

No Service Problem12% Churned

Most LoyalCustomers

Least LoyalCustomers

Swing Voter Analysis

This analysis can be used to identify ways of trying to win lost customers back. It identifies the performance attributes likely to make lost customers, who are

neutral with respect to their likelihood of returning, to be more likely to do so. Results of this analysis will show:

– For swing voter up analysis, identification of the key drivers, and their relative importance, for moving lost customers to be more likely to return.

– For swing voter down analysis, identification of the dissatisfiers, and their relative importance, that can move lost customers to be even less likely to return.

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Swing Voter AnalysisImportance

Scores for Selected Attributes

Swing Up

Swing Down

Short hold times for Technical Support 28% 4%

Regular status updates on open Tech Support issues 8% 4%

Competitive prices 7% -

Internet service with few interruptions in the connection 6% 23%

Fast Internet uploads and downloads 6% 10%

Easy to navigate IVR 6% 6%

Delighters Dissatisfiers Dual effects

Implementing Churn Reduction & WinBack Action

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Lost & Current Stakeholders

Triggers for churn Importance of performance attributes Ratings of client/competitors on these performance attributes Likelihood of returning What client could do to winback Word-of-mouth behaviors

MaxDiff Scaling Predictive Churn Model or Swing Voter Analysis

Turning Data intoBusiness Insights

Actionable answers to each of the key business questions

The Challenge

“Good Research,Poor Actionability”

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Beyond the DataTurning Research Results and Business Insights into Action

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A key component of each Churn & Winback engagement is not only to provide research findings and business insights, but to help drive the learning through the client organization to help them act and capitalize on this knowledge.

Linking stakeholder experiences to their requirements to optimize stakeholder commitment usually requires direct intervention strategies and tactics with customers and/or process changes. We go beyond the guidance provided by the research to show our clients how to use this knowledge.

We have a portfolio of ways to accomplish this.

Beyond the DataTurning Research Results and Business Insights into Action

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In a Workshop session with key stakeholders,

we facilitate how, through multiple techniques,

to prioritize/develop action plans focusing on:

– Understanding reasons for churn

– Prioritizing improvements to reduce churn

– Determining target groups for winback

– Generating winback offers and research to test them

As an option, conduct quantitative research to test winback offers

– Conjoint/Discrete Choice modeling to test various features and levels of offers in a competitive framework

– Simulate share of preference for alternative winback offers

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Case Study

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As a result of this engagement, they were shown what immediate steps they need to take to reduce poor customer service experiences such as reducing hold time, reducing transfers, reducing the number of times customers call back, and clarifying which employees “own” problems. They also were shown how a system for automatically escalating problems that do not get solved would lessen churn.

This phone carrier had long understood, at a high level, the main drivers of Local Telephone service churn. Their knowledge of this problem was based on a predictive model they developed that identifies event-related factors that lead to Customer Churn. Nevertheless, they had found some gaps in their understanding of Churn. Specifically they needed to understand these reasons at a deeper level. They needed an understanding of the attitudinal factors that contribute to churn.

Turning to Harris for help, 600 interviews with current and churned customers were done focusing on reasons for dropping service(s), importance of key carrier attributes, likelihood of returning to the client company, what, if anything, our client could do to win their business back, word-of-mouth behaviors.

The research revealed the following combination of negative customer experiences that undermined their customer relationships: While non-competitive prices are the major reason customers leave, it is poor service that keeps them away. Among Churned customers who left mostly or solely because of price, they will reconsider our client. However, Churned customers who had poor service experiences, and particularly those who felt our client violated their trust or made them feel unimportant, are far less likely to reconsider this carrier.

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Business Issue:Stop Customer Churn

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Why Win-Back Pays

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Why Win-Back Often Goes Unmanaged/Unleveraged

• Retention rates can mislead– 1,000 freshmen: 80% retention rate per year

– Sophomore class 800, Junior class 640, Senior class 512

• Revenue loss and profit recovery opportunity not recognized• Lost customers considered “dead”• Politics

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Win-Back Pays

Source: Customer Marketing Research Study

Probability of a Successful Sale

NEWPROSPECT

EXISTINGCUSTOMER

LAPSEDCUSTOMER

5 - 20%

60 - 70%

20 - 40%

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Win-Back Pays: Documented Example

Doubleday Direct

EXTERNAL LIST/NEW CUSTOMERS

EXPIRED MEMBERS

$13

$60

23%

214%

Net Per Order Net R.O.I.Mailing

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Why Win-Back Pays

• Develop profile for lost customers that can help detect “at-risk” customers

• Improve acquisition/targeting strategies• Reduce negative word-of-mouth• Improve your bottom line by reactivating lost customers

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Target the right former customers for WinBack

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“I have a phone line downstairs in my home that I use for occasional business purposes. Never a long distance call.And about every six months, I get an offer I can’t refuseand I switch the thing fromone long distance carrier to another.”

Source: Customer Winback by Griffin and Lowenstein

“Why would they even want me?”

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High Future Value of Recovered Customer

The value of the relationship once the customeris regained.

Second Lifetime Value (SLTV)

44

Second Lifetime Value Calculation

Orders per year x Average order = Base revenue

Cross-sell $ + Information value $ = Total Revenue

Costs (direct, Win-Back, retention) = Gross Profit

ADD

MINUS

45

Why SLTV may be greater than LTV

• Defected customer already familiar with your services• More information on likes/dislikes than with prospects• Personal recognition through win-back lead to better sales

performance than typical anonymously recruited first-time customer • Length of prospect phase and new customer phase may be shorter in

SLTV than LTV

Source: Customer Winback by Griffin and Lowenstein

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Lost customer recoveryprograms

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Measure

Understand

Evaluate

Refine

Your Win-Back Program

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1 million subscribers in 28 cellular systems

Gaining 2,500 customers per day; losing 500 per day

Example:BellSouth Mobility

(now AT & T)

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Win-Back Research

• Test market = regain 10% lost subscribers• Focus groups: better than competitors on...

coverage, service, billing system• Problems... drop call credit, free phone/air policies, etc.

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Win-Back Lessons

• Get Relevant– Make your re-contact communication specific

• Test Different Offers• Watch Your Timing

– 11 months after defection

• Use Multiple Contacts– Overlay direct mail with telephone

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More Win-Back Lessons

• Win-Back effort only as successful as the people involved• Successful Win-Back reps need training, constant coaching,

team support• Management: Recognize Win-Back work is stressful• Win-Back and marketing efforts can support each other• Effective Win-Back reps are among the most valued employees

of any company

Source: Customer Winback by Griffin and Lowenstein

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Your Re-Approach Message

• Acknowledge past patronage• Point out improvements/changes since last visit• Emphasize ease of re-engagement• Send under recognizable name• Provide possible financial/value incentive

Source: Customer WinBack, Jill Griffin and Michael Lowenstein

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Put successful stabilization programs into place: Manage touch points and experience

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Getting Started

Make it known in your company: The only thing worse than losingcustomers is neglecting the opportunity to stabilize them or win them back

Use purchase data to pinpoint/monitor defected customers, and to identify at-risk customers

Develop LTV/SLTV formulas

Create Win-Back/save and stabilization processes and protocols such as teams

1

2

3

4

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Contact Information

Michael Lowenstein, PhD CMCSenior Vice President and Senior Consultant

Stakeholder Relationship Consulting

Harris Interactive

Princeton, NJ USA609 919-2524 or 856 283-1182

mlowenstein@harrisinteractive.com