Customer Retention Efforts Can Often Backfire

Sometimes, the best customer retention strategy may be to just leave them alone. 

A new study from Columbia Business School has found that hitting customers with proactive retention campaigns, particularly in the telecommunications industry, may actually encourage those customers to switch providers and increase churn. 

For the study, the researchers divided 65,000 customers of a South American wireless communications firm into two, randomly selected groups. One group was offered a plan that would save them money based on past behavior, while the other group was not offered any plan. Of those who were offered a recommended new plan, 10% left the company entirely, compared with 6% who were not offered a plan. (The annual churn rate for wireless providers worldwide is between 15% and 30%, according to some estimates.)



“Because the company talked to all of them, then many thought, ‘Hey, wait a minute,’” Eva Ascarza, co-author of the research and assistant professor of marketing at Columbia Business School, tells Marketing Daily. “If the company would have cultivated only some of them based on some specific characteristics, they would have been better off.”

The reason? Customers who were shown a way to save money opted to evaluate all of their options, rather than just the one offered by their current provider, Ascarza says. The calls also disrupted the natural inertia of customers sticking with a current provider because they aren’t in a high re-evaluation mindset, she says. 

“In every market, there’s a lot of inertia,” Ascarza says. “If a company is going to break that inertia, it could cause a lot of retention problems because it’s [disruptive].”

Rather than offering a plan to all consumers, Ascarza suggests segmenting customers to discover which strategies work best for which customers. “You have to understand what would be the reaction of the customer,” Ascarza says. “Those companies who are doing proactive churn management, they have to understand customers respond differently to different actions.”

The paper, “The Perils of Proactive Churn Prevention Using Plan Recommendations: Evidence from a Field Experiment,” co-authored by Columbia Business School Ph.D. candidate Martin Schleicher and Wharton professor Raghuram Iyengar, will be published in the Journal of Marketing Research.

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