”/> For over 30 years we have been defining, providing and teaching competitive intelligence, mystery shopping and investigative market research.”/> Understanding the Impact of “Customer Churn” – Market Alert Limited
 

Understanding the Impact of “Customer Churn”

Customer churn should be top of mind for all organizations. The importance of a strategically executed customer onboarding program was our last topic. Such a program cements new customer loyalty and commitment. A strong onboarding program also sets the stage for the new customer bringing you more of their business. However, the flip side of converting new customers to long term customers is losing them – customer churn.

Customer Churn Definition

The measurement commonly used to assess losing customers is called “churn”.  The ratio is determined by dividing the number of new customers who leave your business by the number of new customers you have acquired during the same period.

Here is an example. A firm signs up 350 new customers over a 90 day period. It then loses 50 clients during the same period. The churn rate is 15% (50/350).

How Does Churn Impact Revenue?

Let’s take the wireless sector as an example and make the following assumptions:

  1. For this sector, 250,000 new wireless subscribers sign up each year
  2. Annual revenue per new subscriber is $1,020 ($85 per month)
  3. Total annual revenue generated by the new subscribers = $255 million (250,000 x $1,020)
  4. There are four major wireless providers in this sector
  5. Each provider has an equal share of the market (i.e., 62,500 customers)
  6. Finally, let’s assume that one supplier is experiencing an 8% churn rate in the current year.

So what would an 8% churn rate mean in loss sales?

Eight percent does not sound high. However, given real-life statistics, it is significant.

The provider’s “lost revenue” for the 5,000 customers lost = $5.1 million ($5,000 x $1,020).
The complete sector’s “lost revenue” for 20,000 customers lost = $20.4 million (20,000 x $1020).

 

Impact of Social Media

Social Media is playing an ever increasing important role in influencing purchase decisions. It is also a forum for airing complaints and bruising brand reputation. A recent example of videos posted online was when United Airlines had a paid and seated passenger dragged off a flight in April, 2017.

Public reaction was swift. It also took the airline more time than one would expect to properly handle the situation. Thus, appropriate issue resolution and internalized learning from these sorts of issues are critical.

As we all know, the wireless sector has been prone to customer complaints. Some providers have had their reputations tarnished by inappropriate actions (e.g., poor servicing, using outdated customer data, etc.). These actions have negatively impacted some customers and increased customer churn. In regulated industries, an increasing churn rate may translate into increased regulation and oversight. This also results in higher costs for the sector.

 

Complaints to Anticipate & Avoid at All Costs

Here is an example of a real online complaint:

<<“Ever since signing up with my wireless provider, I’ve had nothing but problems. We exchanged faulty equipment several times. Also, the internet service was poor and did not match my bills. The worst part is the constant over-billing on my monthly statement. Eventually, I got fed up and took them to small claims court.

We returned the equipment. Then we were charged for extra days of service when we did not have the phone. A credit for all the equipment returned was not received. We received a confirmation that our service was terminated. Then, we received a new notification that invoice would continue until we canceled the service. What does it take to get them off our backs? We wrote e-mails, letter, made calls, and they still threatened to bill you (probably until the day you die).”>>

 

Here is an example of a real newspaper headline/story (both in print and online):

<<Wireless Firm taking money from dead dad’s bank account, daughter frustrated…”She requested the account to be cancelled just days after her 74-year-old father died. A confirmation number was obtained, but the invoices kept coming. “I’ve been receiving bills from them, and they’ve been continuing to help themselves to his bank account,” she said.

“’There’s no sympathy and there’s no humanity in these corporations”. She has received two extra bills since her father died. Three months later, she received an invoice with a credit for over-billing. The credit was then removed from the account. She has twice provided death certificates to the company. She is frustrated with the run-around from the customer service department.>>

 

Key Learning

Imagine how these complaints increase the customer churn rate of the wireless provider!  Potential new customers go elsewhere and lost revenue from customer churn increases.

With every initiative you make to secure a long term customer relationship, make an equal, if not greater, effort to identify and resolve issues that drive both existing and new customers away.

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