In
order to have an efficient customer retention strategy, holding
on to those customers with high profit potential would lead to
profit maximization. Scientific models such as the dynamic churn
models are used to predict which customer is likely to leave the
company and suggest companies to take proactive actions. These
models empower the managers to execute timely, customer-specific
marketing interventions that result in an increase in ROI.
In implementing a customer
retention strategy, managers are faced with questions such as
when to intervene, how to intervene, and through which channel
to intervene? While developing a framework, it should be remembered
that each customer may have potential for some level of future
profits. In designing an intervention strategy, the first step
is to study the customer’s quitting tendencies. Once we
identify the potential value through the computation of CLV, then,
we can create a value proposition at the time of intervention
that would not exceed the CLV. This way, the retained customers
are still expected to be profitable in the future.
Once the need to intervene
and the customers to be intervened with have been decided, firms
have to identify when the intervention has to be made. The answer
to this question lies with a proactive intervention strategy.
That is, the customers who show a strong tendency to have to be
intervened with in order to prevent customer attrition. The dynamic
churn model, when implemented with an ISP firm, saved over 30%
of the customers who were showing signs of leaving the firm. This
savings resulted in an incremental ROI of about 10 due to the
saving of customers, and retaining them for at least one more
year. This strategy describes an approach and presents a case
study that not only answers these questions, but also illustrates
the type of interventions that are most likely to be successful.
Printer Friendly Page
