Wednesday, July 6, 2016

In the previous post , we began looking at a suggested approach for analyzing lost customer data at an individual level in order to identify specific customers and the value they represented to the company prior to their defection.  To illustrate this approach, here’s a hypothetical example that can be generalized to a variety of lost customer scenarios that many companies, regardless of industry, typically experience.

In this case, the company has four groups of customers segmented based on lifetime value.  That is, the company has simply totalled the value of all purchases made by these customers and developed four segments each with their own purchase threshold.  Looking at the segments from lowest value (segment #1) to highest (segment #4) reveals that attrition over the preceding 12-months has been 8% for segment one; 4% in segment two; 5% in segment three; and 3% in segment four.

On first blush, we’d be tempted to conclude that segment one, with 8% attrition, requires immediate attention.  Looking at lifetime values, however, indicates that while segment four lost only 4% of customers, this represents 65% of the revenue the company earned in the last 12-months.  While these are hypothetical numbers used to make a point in this example, this is not an uncommon occurrence.  This variation on the “80/20 Rule” is often seen in lost customer analysis and it’s the primary reason why looking at a single retention value is often misleading.  

In addition to this lost customer value, it’s also compelling to look at the corresponding inflow of new customers to determine if the value lost is being replaced by that brought in by the new acquisitions.  While this may not be possible in all industries because the new customers have yet to establish a purchase history with the firm, this analysis can be done in whole or in part, for example, in financial services.  That is, when these new clients open and fund their new accounts, how do the initial deposits compare with the value of deposits the lost customers have taken with them?  Comparing this inflow and outflow is perhaps the best way for CX to make a business case for addressing dissatisfaction and the resulting defection of customers.  As such, an inflow and outflow metric should be a critical component of any CX performance reporting.

Informed by this insight, from a strategic perspective, CX should next seek a thorough understanding of why these high value customers are defecting.  While the responses to survey questions may reveal some “first-level” reasons for leaving, it’s unlikely that quantitative data alone will provide a comprehensive understanding of customer attrition.  This is because, in most cases, the reasons behind defection are multifaceted and complex.  Specifically, as discussed in a previous post, customer expectations around products, services and the overall experience typically focus on functional, social, and emotional “jobs-to-be-done.”  Obtaining a deep understanding will likely require qualitative research methods such as individual interviews and/or personal observations of customers who are using your product or service.

One-on-one interviews with lost customers often results in actionable insights that can subsequently be used to address the shortcomings in the product or service that contributes to attrition.  In her very practical and informative book, Buyer Personas, Adele Revella presents an interview format geared towards acquiring a comprehensive understanding behind the reasons customers elect to do business with a company.  Adele refers to her method as the “5-Rings of Insight” and I’ve modified her approach to make it applicable to conducting lost customer interviews.
  • What triggered your decision to find another company from which to buy this particular product or service?
  • What were your expectations of the product / service when you first purchased it? These expectations must be categorized into functional, social and emotional “jobs”.
  • In using the product/service, what were the hurdles to satisfaction…that is, where did your functional, social and emotional expectations not line-up with what you actually experienced?  
  • What was your criteria in selecting a new company from which to purchase the product or service?  From this, you’ll want to identify if the customer is looking to complete the original functional, social and emotional jobs, or if perhaps over the course of the experience with your company, the list of jobs has been modified.
  • How did you go about selecting the company you’re now with?  Here, you’ll develop a  journey map depicting the trigger moment of defection from your firm and continuing all the way to the selection and use of the competitor’s product or service.

In the next post, we’ll use another hypothetical case to look closer at the lost customer interview.

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