Identifying the reason for customer churn and taking corrective steps to minimize customer churn

Why Brands Should Focus on Reducing Churn

In the digital landscape, with increased competition, brands must spend huge amounts on marketing to attract and retain customers. Customers are attracted to brands that offer a similar product at a lower price or a better-quality product at a similar price. For brands, this means dangling customer loyalty.

Retaining existing customers is more economical than acquiring new ones, as re-engaging past customers is typically 5x cheaper. Leveraging customer data and brand familiarity with past customers enables brands to deploy personalized marketing strategies to reacquire these customers.

Understanding customer churn at the product and brand level

Churn, also called customer attrition, is when a customer stops purchasing from a brand, typically within a specified time frame. A lost customer means a lost source of revenue for brands. This is why brands must reengage with churned customers and try to retain them. But how do brands identify if a user has left or is just sleeping on the brand?

For brands that work on a subscription-based model, a churned user is someone who has canceled their subscription or failed to renew it.

However, for brands that work on a purchase or pay-on-demand model, identifying customer churn requires them to understand the average repurchase duration of their products and compare that with a customer they think has potentially churned. Brands need to study the customer purchase journey and history to predict whether the customer will return organically.

Whenever first-time customers purchase a product and are satisfied with the customer experience and product, they repurchase. This repurchase could be of the same product or a different one from the same brand. The duration between the first and second purchases is generally longer than the duration between subsequent purchases. As customers become more familiar with the brand and product, the time between consecutive purchases typically decreases. If the customer has not purchased or engaged with the brand for a specific time period, the customer is said to be churned. Customer churn is of two levels:

1. Product-Level Churn: Every product has a repeat purchase time frame, which is dependent on the product's characteristics. A 100 ml bottle of hair oil might have a repeat purchase time frame of 1 month, while an electric heater might have a repeat purchase rate of 2 years. Product-level churn occurs when a customer remains engaged with the brand but stops buying a specific product. For example, if a customer of a hair care eCommerce brand stops purchasing hair oil after the 1 month refill period but continues buying other items like hair serum, the brand experiences product-level churn for hair oil with that customer.
   
   

2. Brand-Level Churn: The second level of churn occurs when a customer stops purchasing any product from the brand after a specified time period. Customers can switch brands if they find a better value proposition. For example, if a customer used hair oil and hair serum from a brand, switched to purchasing only hair serum over time, and eventually stopped purchasing the serum, a brand-level churn for the customer has occurred.

Understanding these churn levels is essential for brands to understand and predict the loss in revenue effectively. A brand-level churn is more concerning than a product-level churn. Typically, the number of customers who churn at a product level will be more than at a brand level. This is because customers might switch between products based on their current needs, but there must be a compelling reason for a customer to switch brands.

To identify product-level churn, brands can look at the frequency of repurchases. This repurchase frequency is usually constant once a customer is well acquainted with the brand. If a customer does not repurchase the product after the repurchase duration, they will have churned for the product. This can be illustrated graphically as:

For brand-level churn, however, brands need to monitor the number of orders within a specified time. If the percentage of orders decreases with time and eventually becomes zero, the customer has churned. Graphically, this would look like this:

Going forward, the blog will discuss everything at a brand-level churn.

Illustration: A hair oil brand, Lustrous (name changed), offered three categories of hair oil – hair fall reduction, hair strengthening & hair growth. A 100ml bottle typically lasted for a month (30 days) before having to be repurchased. A set of customers from the customer segment ‘Hair fall reduction’ made their first purchase 50 days after coming across the brand. They then made their first repurchase after 35 days. The average duration between their next few repurchases was 35 days, 30 days, 28 days, 27 days, 23 days, and 26 days. With time, they became familiar with the product's usage cycle and started ordering before running out. Their average repurchase interval was 28 days. However, after 10 months, the brand noticed that they hadn't ordered in 35 days. These observations raise concerns about potential churn.

Brands can use various metrics to identify potential churn. The most common metric to track for identifying churn is:

Purchase Frequency: Purchase frequency refers to the average number of times a customer purchases from a business within a specific period. When the purchase frequency of a customer becomes zero, the customer has likely churned.

For brands to understand if a customer has left the brand or is just taking longer to make a new purchase, brands can also consider:

Engagement Level: If a user's engagement level with the brand, that is, product clicks, time spent on the product page, add-to-cart rate, and other forms of interaction decreases, it can be a sign of churn. No form of engagement from the customer indicates churn.

Illustration: Continuing the case of Lustrous, upon realizing that the customers had not repurchased for 30 days, they compared and analyzed segment's behavioral metrics with the 19-month average of the same metric of their loyal customers. Their observation was as follows:

From the above data, Lustrous concluded the following:

• The average purchase duration for the segment was less than the average, indicating they might have repurchased the product significantly before it needed a refill.
  

• Customers might return to purchase the product again since their initial repurchase duration was 35 days.
  

• They have been active on the website since their last purchase.
  

• In month 19, they are not very far from the average repurchase period of loyal customers.

If the customers do not purchase in the next 10 days, i.e., 45 days since the last purchase, and their engagement does not increase, Lustrous shall consider them as churned customers and start re-engagement campaigns to reacquire them.

Why customers might be leaving the brand

Once brands have identified if a customer has churned, they also need to identify the reason behind the customer leaving. While some attrition is normal, increasing customer churn indicates the presence of some inherent problems. Identifying the reason for the churn can help brands evaluate the problem. By addressing these problems, brands can win back lost customers. A strategic approach for the same would be to:

1. Analyze customer data: Brands should analyze customer data such as usage patterns, interactions, feedback, and demographics to identify commonalities among customers who churned during a specific time period. Identify if any specific product has continued customer churn. This data provides direct insights into their behavior and experiences.
   
   

2. Develop customer persona: Based on the data analysis, develop detailed customer personas representing different customers. Personas should capture attributes like demographics, pain points, motivations, and behavioral patterns. These personas help brands understand the diverse needs and challenges of churned customers.
   
   

3. Develop Hypothesis: Examine the customer personas and data patterns to formulate hypotheses about potential reasons for churn. Factors could include product dissatisfaction, lack of perceived value, poor customer support, pricing issues, or changes in customer needs.
   
   

4. Segmentation: Group the churned customers' personas based on shared characteristics, behaviors, time or reasons for leaving.

Once brands have segmented their churned customers. They will be able to identify the reasons for churn. These reasons could vary depending on the duration of association of the customer with the brand. For example:

The reengagement strategies will differ for the three segments depending on how far they progressed in their customer journey.

So, while there are many reasons for churn at different points in their customer journey, not all those reasons can be addressed. For example, a brand has no control over taxes, and trying to reengage customers who left for this reason is futile. However, some reasons can be addressed and would be common for the three segments mentioned above, for example:

1. For New Customers -> Lack of connection: Brands can reengage with them using drip marketing techniques.
   
   

2. For Old Customers-> Better alternatives: By providing special discounts and promoting the value propositions of their products, brands can reengage with these customers.
   
   

3. For Previously Loyal Customers -> Not feeling valued: Special discounts, loyalty points, exclusive product access, and rewards for these customers can help brands reengage with these customers.

Thus, segmentation allows for targeted analysis and tailored strategies to address specific churn drivers.

Illustration: Continuing the case of the “Hair fall reduction” segment, Lustrous observed that it had been over 45 days since the last purchase. Hence, they concluded that the customers had churned. Since significant time had not passed since their attrition, Lustrous could win them back if they identified the reason for the churn. Upon analysing past purchases and browsing behavior, they noticed that the customers had also viewed hair growth oil since their last purchase. They came up with the following hypothesis:

Customers in the “Hair fall reduction” segment were browsing for hair loss and hair regrowth oils. Two hair oils did not fit their budget, leading to them leaving the brand for an alternative.

Based on this hypothesis, the customers were placed in the “Price-sensitive to multiple products” segment, which consisted of customers with similar characteristics. These characteristics included price sensitivity, looking for multiple solutions, and more than 15 past purchases.

Reengage customers based on duration since churn

Winning back lost customers is not an impossible task. Brands need to identify potentially high-value customers who left the brand recently and reengage them. The strategies to win back churned customers can vary depending on the time elapsed and the reason for their churn.

A brand can bucket its customers based on duration since churn and use appropriate reengagement strategies. Three general buckets that a brand can create are:

• High win-back probability: A recently churned customer (1-3 months ago) is probably easier to reengage since they are more likely to remember the brand.
  
  

• Medium win-back probability: Customers who churned 3 to 6 months ago might have found better alternatives. A more personalized and targeted approach is necessary while engaging with them.
  
  

• Dormant Customer: A more aggressive approach is required for customers who churned more than 6 months ago and have remained dormant since they probably have changed and have well-established habits, making them more challenging to win back.

Within the above buckets, too, strategies will differ for new, old and previously loyal customers. Brands can then use different data-driven tactics to reengage lost customers from different buckets.

Illustration: Moving forward with the case of Lustrous, since they were able to identify that the churned customers were loyal customers (10+ orders), had a high win-back probability (left 1 month ago), and left since they found the price of a product bundle to be over their budget. The brand now sends them a personalized email stating Lustrous values their association, has missed them, and offers a 10% comeback discount on the hair fall reduction and hair growth oil bundle.

By identifying the various marketing tactics, promotional offers and the right channel to appeal to customers, brands can successfully reengage lost customers. A few such techniques for bucketing and reengaging churned customers would be:

Reengaging the “New customers with high win-back probability"

Cross-selling

By leveraging insights from past transactions, businesses can tailor cross-selling recommendations to match customer preferences and needs, encouraging them to return and make additional purchases. Specifically, targeting customers who have recently made a purchase but have not visited the website since can be a prime opportunity for cross-selling. Cross-selling can be implemented through various channels, such as email marketing, targeted advertisements, or personalized recommendations within the app or website.

For example, an e-commerce clothing website can send a "complete the look" email based on the customer's recent purchase. These messages can highlight related items or accessories that enhance the original purchase and help the customer create a complete outfit.

Reengaging the “Old customers with high win-back probability” segment

Similar product recommendation

By analyzing the customer's purchase history, businesses can identify products that are similar to the ones previously purchased. Recommendations and discounts can then be personalized based on customer preferences and past brand interactions.

For example, if a customer has shown interest in non-fiction books and used to purchase books every 15 days, emails and push notifications highlighting discounts on bestseller books after 30 days of inactivity can reacquire churned the customer.

Reengaging the “New customers with medium win-back probability” segment

Reengagement campaigns

Reengagement campaigns aim to revive interest and interaction with churned customers, especially those who churned more than 3 months back & can be used for customers who churned due to a lack of connection. Examples:

• Email or message with a code offering a free trial or demo of a new product or feature.
  
  

• Email offering discount on subscription renewal.
  
  

• Exclusive “Miss you” messages and offers.

Analyze user behavior and engagement patterns to determine the optimal timing for re-engagement. Look for indicators such as the frequency of past interactions, time since the last activity, and historical response rates to re-engagement efforts.

For example, if a customer purchases clothes every 3 months and hasn’t purchased anything for the last two quarters of the year, send them a re-engagement email with an exclusive offer and sneak peek into the trending clothes for the season. For this, brands can set up trigger-based campaigns that automatically activate when certain criteria are met, such as a user reaching a predefined level of inactivity or exhibiting behavior indicative of disengagement.

Reengaging the “Old or previously loyal with medium win-back probability” segment

Stay in touch with customers with a newsletter

Maintaining regular communication is a valuable strategy for keeping the customer relationship active. An effective way to achieve this is through a well-crafted newsletter. By delivering helpful, relevant content through a newsletter, businesses can ensure their brand remains top-of-mind for customers. This ongoing communication can help rekindle interest and position the company as a trusted resource, potentially paving the way for reactivation when the customer's needs or circumstances change.

Automated email marketing techniques can be used for this. Customize the newsletter based on customer segment. Customers who are particularly interested in sustainable and eco-friendly products can be sent information regarding new eco-friendly products and company initiatives in the field, and an early tech adopter segment can be sent information regarding advancements in the field.

Reengaging the “Old or previously loyal customers but now dormant customers” segment

Gamification

Gamification utilizes techniques such as rewards, badges, and points to motivate users and encourage participation. These rewards can serve as incentives to entice churned users back to the app and rekindle their interest. Notifications, such as in-app messages or push notifications, can be utilized to inform churned users about the rewards they can earn by returning to the app.

Tips for crafting compelling personalized re-engagement strategies

Brands can leverage first-party data to revive the lost association. First-party data, directly collected from customers with their consent, enables personalized communication. Tips for successful personalized re-engagement campaigns:

1. Choosing the right channel: Reach out to customers through the channel they initially engaged with, whether through personalized emails, timely SMS messages, or targeted social media campaigns.
   
   

2. Address the pain point: Craft campaign messaging that directly addresses the reasons for churn, offering incentives, showcasing new/improved products/services, or highlighting changes that address customer concerns.
   
   

3. Utilize automation: Employ automation tools for effective segmentation and personalized messaging, streamlining the retargeting process. Use automation for drip email marketing, timed WhatsApp messages, etc.
   
   

4. Measure and adapt: Continuously monitor campaign performance using engagement metrics and adjust strategies as needed for optimal results. Send a follow-up email with updated offers if an email has a high open rate but a low conversion rate.

In conclusion, brands must adopt a data-driven approach to reacquire churned customers successfully. First, they need to differentiate between product-level and brand-level churn. Product-level churn may not indicate a lost revenue stream, as customers can switch to another offering within the brand's portfolio. However, brand-level churn represents a lost revenue stream, and brands should prioritize re-engaging these customers while the opportunity remains, as reacquisition becomes increasingly difficult over time.

To identify churned customers, brands can track average purchase frequency and engagement metrics. A significant duration without purchases or engagement beyond the customer's typical repurchase period confirms churn. Brands should then analyze customer data, create personas, and group similar profiles to understand the reasons behind churn.

It's crucial to recognize that not all customer concerns can be addressed, and efforts should focus on re-engaging customers whose reasons for attrition can be effectively addressed. Once identified, churned customers can be segmented based on their order history (new, old, previously loyal) and the duration since their churn, as these factors influence the probability of reacquisition.

Brands can then employ various strategies, such as cross-selling, recommending similar products, gamification, and newsletters tailored to each segment's needs and preferences. By successfully reengaging churned customers, brands can increase customer lifetime value and drive profitable growth.