Check out this week’s podcast to learn more about the customer churn cycle
Have you ever come to the end of a contract with a customer unsure about what they might say? Or have you ever been surprised by a Monday morning email from a customer saying they’re buying from a competitor? We see customer churn everywhere. Big and small companies alike. Good companies do lose great customers.
Whether we like it or not, our customers are talking about us. We may not be able to control what they say, but we can influence what they might speak about and how they feel.
This is one of the most important considerations to understanding how to effectively manage and reduce customer churn and increase customer retention.
Effective management of customer churn is an intentionally designed set of interactions between you and the customer that leaves the customer better than when they arrived.
According to studies, those companies who take a systematic and proactive approach to reducing churn tend to experience:
- Higher customer loyalty scores
- Greater increases in annual revenue
- Acquire new customers business
Before we can begin to realise the benefits of effective customer churn management we must understand what customer churn is.
What is Customer Churn?
One definition of customer churn states it is…
… the proportion of contractual customers or subscribers who leave a supplier during a given time period.
Whereas this is factually accurate, customer churn today is more nuanced.
Another way customer churn could be described and measured is as:
The number of customers who leave, reduce their current spend or purchase similar products from a competitor over a specific time period.
Any of these can be seen as customer churn. The work and study of Frederick F. Reichheld fellow and research from Bain & Company on learning from customer defection says a lot. Reichheld documents the case study of Microscan’s learning from customer defection and getting curious with failure. The revelation that came from the analysis of defection led them to notice the stages for their business where churn occurs. They called the “customer corridor”.
The more you study customer churn the more you realise that churn is not a number at the end of the year. It is the customer corridor that most businesses miss.
It is the consequence of a sequence of poor customer decisions, assumptions, experiences and strategies made over time that was not addressed adequately or challenged in the moment.
The Churn Cycle
There are three distinct churn triggers that every organisation and customer serving professional needs to look for closely in their customer relationships.
The three D’s of churn:
- Discomfort – Lack of confidence from experience in quality of service or expectation that hasn’t been met.
- Dissatisfaction – Consistent disappointment in unmanaged expectations or a core value has been violated
- Disconnection – The perceived risk of owning the relationship is higher than the reward to stay and the customer’s expectations and values has not been satisfied.
All of these areas can happen in a single interaction. Very rarely is the action from the customer decided then.
But, unless you have a mechanism for identifying when things aren’t right, you’ll fall prey to what even the best companies experience… an above-average churn.
Customer churn rates will differ by industry from 6-58% per year, or an average 20-35% customer churn rate in the banking industry.
This doesn’t include the apathetic customer that doesn’t show up in the churn stats. Those customers just stop doing business with you. They won’t tell you they’re leaving, and just stop paying for services, gradually buy less, or wait out their contract.
This is why we need to look at churn differently.
Churn Cycle Management
Within every organisation, there are three elements we manage:
- Practical management of customer delivery and value
- Relational management of customer experience and trust
- Emotional management of customer commitment and risk
These are the elements you’ll see in almost any company for key customer management.
When we experience customer churn and a customer leaves, that process is almost never a one-time experience. It’s a decision triggered by their experiences.
What you do within the first 12-months of a customer coming on board in your business will determine how hard it will be to grow sales and relationships throughout a customer’s lifetime.
How do we deal with this?
We must have a clear view of what we are measuring, evaluating and actioning across the three areas of customer management:
- Practical management
- Relational management
- Emotional management
Below I’ve shared a starter guide of principles for each area of churn that will help you evaluate and prepare to move from asking “how do we retain these customers” to asking “how do we become irreplaceable”?
PRACTICAL MANAGEMENT OF DISCOMFORT
DISCOMFORT EXPERIENCE: Lack of confidence from experience in quality of service or expectation that hasn’t been met.
DISCOMFORT PRINCIPLE: Shift from asking “what do we do” to “how do we know”
You can’t possibly change what you’re willing to tolerate.
We can often miss the strong psychological blind spots that prevent us from seeing the truth of where our customers are.
Customer churn doesn’t start when a customer is dissatisfied, it starts the moment comfort with your customer becomes unintentional complacency.
This can sometimes be experienced as drops in the level and quality of customer service.
One of the most effective means to drive greater value with customers begins with a shift in perspective, before a shift in the activity. Why? Because the moment you decide to stop, you give yourself and your organisation space to look around. If you do this honestly it will impact your intent and focus.
In the inertia and complexity of life, it can be difficult to consistently stay fixed on what matters most with your customers. We must have a process in place that enables us to do this more often.
Before taking any customer action with your team or peers, ask:
Is what we’re doing today giving our customers greater value, clarity and confidence in how we’ll achieve results for them? What evidence do we have to prove this?
If in asking these questions you look around and see blank faces in the room; it’s time to rethink your solution because you might be running on assumptions.
RELATIONSHIP MANAGEMENT OF DISSATISFACTION
DISSATISFACTION EXPERIENCE: Consistent disappoint in unmanaged expectations or a core value has been violated.
DISSATISFACTION PRINCIPLE: Your expectations and those of your customers are rarely the same.
This may seem obvious, but it is too often overlooked and underestimated.
Today customers are not just buying your goods and services, they also buy the expected and unexpected value that comes with having a relationship with you and your organisation.
If you don’t know what your customers expectations are of you and the value they see in the relationship, you’ll fool yourself into believing you’ve sold a great product.
This is why so many loyalty programmes do not live up to expectations. They fail to recognise what customers actually want and the value the business brings outside of the product or service.
One of your most powerful influencing tools is your perceived relationship value.
Customer satisfaction scores can be helpful but they only prove a rating. Loyalty is about emotions and the relationship attached to them.
The right qualified relationship perception will empower you to take more effective action and drive revenue. In your next customer interaction don’t just send another satisfaction survey, explore what your customers truly value.
Start with this question today:
Outside of our product or service, what is the one thing you find to be most valuable in doing business with us? Why is that so valuable?
Your customer’s answer may surprise you, but more importantly, it will highlight where to start to building up the relationship.
EMOTIONAL MANAGEMENT OF CUSTOMER DISCONNECTION
DISCONNECTION EXPERIENCE: The risk customers perceive from owning the relationship is higher than the reward to stay. Care of customer expectations and values has not been satisfied.
DISCONNECTION PRINCIPLE: Own your customer journey to capture the moments that matter to them.
The truth is you’re carrying a heavy weight called the unknown.
The unknown is what your customer needs, feels, and wants to experience at each stage of their interactions with you. Not resolving the unknown will drown potential opportunities and increase the likelihood of churn over time.
At each stage with our customers, we need to start by asking questions that give us the clearest possible picture of where they are today.
In doing this we’ll uncover two important things:
Customer risk blocks – Understanding their market, internal political climate and personal perspectives, all enable you to better manage and eliminate the risk that will elevate trust.
Customer experience sabotage – The biggest sabotage to customer experience isn’t failing technology, it’s an organisation without total ownership of their customer experience. You must connect and build strategic and collaborative relationships with your peers across departments. Together agree a plan of how to manage the experience of customers collectively, and if need be meet regularly to ensure things are working.
In your next conversations share the ideas of risk blocks and experience sabotage with your colleagues. Discuss, capture and take action on the results.
Listen to part two of the Key Customer Growth Series where I guide you through the process of understanding the customer churn cycle:
Whether we like it or not our customers are talking about us. We may not be able to control what they say, but we can influence what they might speak about and their experience of those moments with us.
How many customers do you want to keep in your business this year?
This is an odd question as most sane people would say “as many as possible’. Yet, today many businesses do not have clear repeatable and proactive practices to retain their most important customers.
Don’t choose to be irrelevant, choose to be irreplaceable.
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Let’s begin the journey to become the adviser your customer never wants to leave.
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