04 Sep Top 4 reasons customers churn — and how to prevent it
It’s time to face facts: even as you work hard to nurture and gain ideal customers, other customers are always leaving. The rate at which shoppers unsubscribe to your service or discontinue purchasing is known as churn rate; a high churn rate poses obvious problems for your business in that it slows growth and decreases revenue. In order to combat this, traditional marketers believe you need to acquire customers at a rate faster than at which you’re losing them.
At Retention Science, we think that methodology is a lot like trying to fix a leaky bucket just by pouring faster. It puts pressure on the company to keep acquiring customers; then, in the frenzy of trying to increase numbers, it’s common to lose sight of the shoppers you already have. By focusing on acquisition alone, you end up neglecting existing customers – until they get fed up and leave. It’s a vicious cycle that many merchants don’t even realize they’re trapped in.
And it’s a cycle worth breaking – not only is it counterintuitive, it’s also needlessly costly. According to The White House Office of Consumer Affairs, existing customers are worth 7 times more than newly acquired customers. By analyzing your customer’s transactional, behavioral, demographic and social data, you can effectively apply more predictive and precise retention marketing strategies.
Before you focus on how to make them stay, though, it’s important to understand why customers leave in the first place. Here are the top 4 reasons customers churn – and how to prevent it.
1. Bad customer service
Spoiler alert – the biggest reason customers leave is not, in fact, because they found a better price. According to research from the U.S. Small Business Administration and the U.S. Chamber of Commerce, 68% of customers leave because of they are upset with the treatment they’ve received. And when they leave, they often don’t go quietly – the average dissatisfied customer will tell between 9-15 people about their experience. These kinds of numbers mean that bad customer service can and does actively hurt your business.
Polite, friendly communication and prompt handling of complaints are hallmarks of good customer service, but what it really comes down to is making each customer feel like they matter. Shoppers don’t want to feel like just numbers in the system or line items in a revenue column; they want to feel engaged and appreciated.
The key to achieving this early on is personalization. Tailored messaging and content gives the impression that your company is paying attention to what your customers want as individuals. Shoppers who feel as though the company is taking a stake in their interests will often return the favor. To earn customers’ interest, you have to show them your interest in them, first.
2. Not enough value
Value is another top reason for customer churn. However, it’s important not to equate “value” with “price.” In this case, value is a more encompassing term that describes the entire customer experience. This is especially apparent in that 55% of customers would pay extra to guarantee better service, instead of just opting for the lowest price. Provide value for your customers by personalizing incentives; what is important and valuable to one customer may not be worth the same to another. Being able to gauge what each customer finds valuable goes back to understanding what they like. Free shipping, to some well-off shoppers, is more of an incentive than a percentage-off coupon. Customizing your approach to each customer is most effective in providing him or her with what is perceived as good value.
3. Poor quality communications
Another top reason for customer churn is due to amateurish and unengaging communication tactics that end up turning off the customer. With email subscription rates, for example, 35% of customers unsubscribe from emails because they are sent too frequently. Sending batch-and-blast emails with information completely irrelevant to shoppers will make your company seem annoying in the short-term and clueless in the long-term.
To avoid this, don’t spam your customers. Just as you need to determine what is valuable to each customer in your marketing approaches, make sure each of your messages serve a specific purpose. These purposes can range from a welcome message to teach the shopper about your brand, to a win-back email incentivizing them to come back. Remember to emphasize personalized, quality communication over quantity.
4. No brand loyalty
When shoppers leave, it is usually not because they’ve sworn off your product forever. Generally, shoppers run from you and straight into the welcoming arms of your competitors (again, most often due to service-related complaints, per Bain & Company). Essentially, this means that the customer views you and your competitors as interchangeable – there is not enough brand loyalty to differentiate why one is a better alternative than the other. When that happens, price becomes the deciding factor in whether a customer stays or leaves.
The answer to preventing this kind of churn is by building a brand-loyal customer base. As we’ve mentioned before, brand-loyal customers are loyal to your company based on their perception of your brand, as opposed to just the draw of your prices or promotions. They are the customers most likely to stay even if prices go up, who value you as a company as opposed to purely as a vendor. When correctly nurtured, brand-loyal customers become advocates for your company, who not only like your product and continue to purchase, but also encourage their friends and family to, too.