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The Retaining and Reviving of Customers

July 24, 2020 at 4:24 PM

What is the true value of losing a customer?

The answer to that question can at times be a slightly complex one, as it is not just the cost of losing one particular sale. It represents the total amount of money that a customer would have spent in your business, or on your products, during their lifetime. Customer Lifetime Value (CLV) is the prediction of net profit attributed to the future relationship with a customer.

Some companies manage this metric very closely, like NETFLIX. They know all too well about the value of a lost customer, as they provide a service to a customer segment that is highly impatient and does not like to wait for the latest release. An average Netflix subscriber stays on board for 25 months and the average lifetime value of a Netflix customer is $291.25, which is in effect the value of losing a customer.

STARBUCKS, who are often considered to be the gold standard in terms of customer satisfaction, closely tracks the impact of this customer rating and how it can boost its CLV. This rating has at times been as high as 89%, and has meant Starbucks’ Customer Lifetime Value has been calculated to be a staggering $14,099.

One would think that with the extensive value that a retained and satisfied customer can provide your business over their lifetime, that this should indeed be a priority focus of any organisation. But alarmingly, it’s not always. Not all companies are successful in retaining customers. In fact, the majority of companies are not. In the United States alone, US businesses lose $63 billion a year due to lost customers.

Now for the numbers.

What is even more astonishing is the plethora of research that supports the efforts to retain and win back customers makes complete commercial sense. Bain & Co, amongst others, has found that a 5% increase in customer satisfaction can increase profits by 25% to 95%. The same study shows that it costs 6 to 7 times more to acquire a new customer than keeping an existing one.  

According to a McKinsey report, it was stated that a five percent reduction in the customer defection rate can increase profits by 25% to 80%. It is also common knowledge that it can cost five times more to acquire new customers versus retaining existing ones and that 70% of surveyed companies agree it’s cheaper to retain.

We need to move on from our losses and see those customers as our best prospecting base.

A lost customer that has now become dormant provides businesses with a target market better than no other. This is because you will have access to the client’s product preferences, behaviour, repayment performance, and willingness to spend. These dormants are also far more receptive to reading your marketing messages, as it has been proven that it can be nearly 10 times less expensive to renew or re-engage customers than acquiring new ones.

All of this has to make you ask the question: Why don’t companies simply place more importance on this segment of potential business?

In the times we are in, with markets currently going through a period of significant economic stress, the ability to retain and in particular to re-activate those dormant customers, becomes vital to sustaining a profitable business. It is then the application of predictive analytics that is the catalyst behind the success in reaching those objectives.

Making use of predictive analytics allows us to give accurate responses to common questions such as:

  • Which customers of our current and dormant population do we wish to target?
  • Then, how to manage the campaigns effectively to ensure the best possible response and activation rates?
  • How do we then make sure that we make the right offer to the right customer?
  • What communication channel do we choose to use to run the campaign?
  • What channels and offers do we deploy for specific segments?
  • And lastly, what should our targets be?

Naturally, before those customers become dormant customers, companies need to be able to successfully retain customers. Herein lies the analytical challenge of calculating the retention probability of each and every customer. This can be done again by making use of predictive analytics where a suitable set of variables or predictors is selected and applied to the most appropriate statistical model. Predictive analytics provides the marketers the right tools to allow them to prioritise effort, spend, and resources effectively.

Just because they left you doesn’t mean you can’t win them back.

What is good to know, is that companies with a clear plan to retain and activate dormant customers with a strong analytical overlay, can have a successful and profitable outcome. 

Read our blog, 4 Lessons From Great Customer Retention Strategies On Reducing Churn, published in March, 2018, that highlights some great customer retention strategies some companies have adopted in the past, and how they can be implemented within your organisation.

Find out how Principa can help you better manage your customers. Contact us.

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Mark Roberts
Mark Roberts
Mark has over 15 years’ experience within the credit life cycle with 10 years’ specialised in Collections and Recoveries having been gained through exposure in both B2B and B2C markets across Europe, UK, and South Africa. With both extensive operational and strategic experience, Mark has successfully delivered and lead a number of initiatives within collection strategy, operating processes, platforms, and payment solutions. He holds a B.Comm degree in Actuarial Sciences from University of Pretoria.

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