Customer churn is an organic part of conducting business. But when neglected, they can spiral out of control, heralding the end of the company.
HelloFresh has been crumbling under the weight of customer cancellations, with only a fraction remaining after six months. Reducing customer churn can be a tricky road to navigate, but ensuring that you attract the right customers and satisfy their needs will ensure you can grow your profits sustainably.
In November 2019, a streaming service survey conducted by YouGov, commissioned by The Trade Desk, found that 75 percent of US consumers were not willing to pay more than $30 per month on streaming services, with 60 percent of respondents not willing to pay more than $20 per month on streaming. The results showed that, while subscription-based services were popular among US consumers, they are becoming more critical about their subscriptions and their willingness to pay for them.
The survey highlights a broader point. Companies tread a fine line between what they can charge for their services and revenue generations. A slight misstep can trigger an exodus of customers, nullifying all previous efforts. These effects are amplified by a poor customer experience, exemplified later in this piece. What are triggers for customer churn and how can business leaders navigate this delicate dance?
Framing customer churn
As with many marketing metrics, churn is yet another datapoint among many and can therefore be easily misinterpreted. As with many metrics and examples that will pass during this piece, churn doesn’t exist in a vacuum. It’s an interplay with different data points that tell a story about the company’s health, its product and its customer experience. Churn therefore should be treated as an indicator and not a single source of truth.
In October 2014, contributing editor at Harvard Business Review, Amy Gallo, cited HubSpot’s Vice president of services, Jonah Lopin, who warned that business leaders take churn rate as a given, rather than an opportunity. Churn rates are tracked over a period of six to eight months, she pointed out. If this is the leading metric for customer satisfaction, companies are always six to eight months behind before providing a solution.
Companies fail to place churn rate into perspective, Gallo added. They treat it as yet another metric, whilst in actuality it represents a behavior that is home to many underlying questions. What is the cause for customer churn and what customer behavior leads to them canceling the service. Marketers should be able to fill in these questions in order to tackle the root cause of customer churn.
Churn rate is also heavily dependent per business and per product, Senior lecturer at Harvard Business School, Jill Avery added. Meal kit delivery companies experience enormous churn, losing over 70 percent of customers within one year. Later we will see that European mobile providers consider a churn rate of 38 percent as alarming. These two values alone show how relative churn rate is per business and its subsequent business model. Hence, marketers shouldn’t focus benchmarks across different industries, but focus on how they can reduce churn within their respective ecosystems.
Poor customer acquisition acts as an important factor in the variety between different churn rates. High churn shows that companies, and their marketers, fail to target the right audiences. Avery highlighted that this was particularly prevalent at companies who lean into competitive pricing. They attract customers who are laser focussed on deals. A behavior that remains prevalent within this customer segment.
Tailored plans can increase customer churn
Creating tailored plans that don’t serve the customer’s needs can do more harm than good. In 2015, Eva Ascarza from the Columbia Business School, wrote in a piece in the Harvard Business Review, that many companies faced high levels of churn, highlighting European mobile providers who lost between 21 to 38 percent of their customers each year. While these numbers are nowhere near the eye watering amounts found at meal kit providers like HelloFresh, they compound and push heavily on a company’s balance sheet.
By conducting an extensive study Ascarza and her colleagues found possible avenues to reduce customer churn.Through field research, which examined 65,000 customers at a South American wireless communications firm, the team found several avenues that the company could use to keep customers onboard. The team gave one portion of customers additional features, whilst keeping the services untouched for others.
The findings showed that customers who received additional minutes, upgrade credit were less likely to cancel their subscription, with only 6.4 percent of customers having left the service. Meanwhile, 10 percent of those who didn’t receive any offers, canceled their subscription. However, this raised the question why 6.4 percent of customers still decided to leave, despite receiving special perks.
The team commented that customers who had stuck with the service for a long time, were triggered into reconsidering whether their plan was still relevant to them. This pushed customers to look at competitors, instead of exploring how they could adjust their current plan. By pointing out that they have unused minutes, they are tempted to cancel. This brings an interesting paradox, because many companies want to optimize their service offering to ensure it fits as many customers as possible.
However, if the customers fail to find the appropriate plan, they are tempted to leave. The team suggested that the wireless service provider should make its customer relationship strategy more granular, being able to better segment different cohorts within its portfolio. This would allow for more tailored recommendations, decreasing churn. The researchers warn that marketers shouldn’t be tempted to trial these programs through A/B-testing en masse. Relying heavily on A/B-testing can result in massive blind spots that skew the recommendation efforts.
Additionally, setting up large data efforts to create cohorts and personalized recommendation programs is time consuming, requiring vast resources and expertise, which isn’t always readily available at companies with limited resources. Companies like Netflix have perfected personalization, which decreases customer churn, making it one of the top performers in the video streaming space. However, this required vast data sets and years of trial and error. An effort many businesses cannot afford.
Deliver the basics to reduce customer churn
We can extend the tailored plans to marketers and business owners trying to please the customer at every turn. Back in Juli 2010, founding partner of DCM Insights, Matthew Dixon and his colleagues argued that companies shouldn’t go to the extreme to try and delight their customers. In this fairly controversial take, Dixon pointed out that customers primarily cancel their service when the service has been terrible, pointing to airlines who lose luggage or cellular companies who put customers on hold.
Dixon notes that customer loyalty is created by delivering the promised services consistently, instead of an outstanding customer experience. Dixon observes that a lot of companies have lost focus, failing to deliver what the customer signed up for in the first place and problem solving when issues arise. Hence, companies can reduce customer churn and increase satisfaction by improving their operations at customer service level.
Through a study conducted for the Customer Contact Council, which surveyed 75,000 people who had phone interactions with customer services representatives, Dixon and his team found that delighting customers doesn’t result in increased loyalty. The ability to solve problems, whilst customer service departments geared to deliver on this promise, have the greatest impact on improving customer satisfaction. This in turn will result in cost savings, Dixon argues.
These findings go beyond the book Delivering Happiness by Zappos CEO Tony Hsieh, which has a strong emphasis on going above and beyond to deliver stellar customer service. The book coincidentally came out the same month as Dixon’s publication at the Harvard Business Review. Whether this was intentional, we can only guess, but it goes against the plea from Hseih who argued that its customer service excellence and relentless commitment was the driving force for its explosive growth.
Dixon commented that by sticking to the basics and removing friction when problems arise, companies have a far greater chance of keeping customers onboard. This goes against the philosophy many business leaders employ at their customer service departments, where excellence and customer praises are the guiding principles. The researchers found that 89 out of 100 customer service department managers had exceeding expectations as their main strategy.
On the end of the spectrum, a surprising 84 percent of customers didn’t feel their expectations were exceeded during their most recent interactions. This reveals a stark disconnect between business executives’ targets and the expectations of customers. These colliding forces result in unnecessary costs that could easily be omitted by focussing on problem solving.
One of the main reasons why businesses fail to deliver on basic problem solving is the way they measure customer satisfaction. Dixon found that an overwhelming 80 percent of customer service organizations focused on customer satisfaction (CSAT) scores as their primary metric to determine whether a solution has solved the customers needs. In turn, managers will use this as the guiding principle to managing the department.
However, focusing on CSAT isn’t an indicator of customer loyalty, Dixon argued. He points out that his research showed that 28 percent of customers who said they were dissatisfied with the service, intended to stay. However, if customer service fails to meet the needs of the customer, customers were four times more likely to leave the service. This shows that companies will have to optimize their customer service process to safeguard an amplification of customer cancellations.
Delighting customers is expensive
Forcing to delight customers is unsustainable in the long run, CRM consultant Paul Greenberg warned in 2018 at Customer Think. Noreen Seebacher from Stasa Media highlighted that delighting customers has an element of surprise, which Greenberg found to be unsustainable, as you cannot delight customers all the time. Instead, he argued, companies should focus on keeping customers engaged.
Greenberg mimics the arguments made by Dixon almost a decade earlier. Companies should focus on delivering their services. Removing friction. While delivering delightful experiences is commendable occasionally, it shouldn’t be a guiding principle. Keeping customers, circles back to engaging customers. Business leaders instead should focus on learning to operate within their constraints.
They have to create systems that can service a wide range of customers. This will create a sense of appreciation with customers, who will feel valued. Greenberg notes it’s not about the percentage of discount, which can even lead to customers leaving, as presented by Ascarza back in 2015. Greenberg commented that customer engagement is largely absent in retention strategies.
Reduce friction
Up to now we’ve primarily explored what aspects act as potential triggers for customers to leave a service. However there are multiple pathways a company can explore to ensure a reduction in churn or prevent the customers who decide to leave, do so with a bad aftertaste. One of the primary ways to decrease churn is reducing friction when using the service. An aspect also highlighted by Dixon, who urged to make the customer experience as easy as possible.
The lengths customers have to go to complete a task, is expressed in the Customer Effort Score (CES). This metric, expressed between 1 and 5, will help identify potential bottlenecks in the different customer journeys. Reducing customer effort scores can be accomplished through several strategies. Customer Effort Scores can be integrated across multiple touch points in the customer journey. HubSpot points out several contact points such as after an interaction that led to a purchase, after contact with customer service or during feature updates.
Companies should reduce the amount of times customers have to reach out to have their issues resolved, Dixon warned. This metric is expressed in the first-contact-resolution (FCR) scores. During their research, the team found that 22 percent of repeat calls are issues related to initial calls. Many companies, Dixon noted, are solely focussed on metrics such as call time, but not on problem solving statistics.
Customer service agents, meanwhile, should have the necessary tools to remove friction and decrease emotional distress at the customer side. They should have the ability to go beyond what is being dictated by company policy. United Airlines was a recent example where stringent policies disarmed customer facing employees, leading to increased stress with customers, who got stuck in loops and unable to solve their problem.
Operational transparency
Many companies have worked to reduce friction and customer contact by giving them the tools to make the right purchase or keep their businesses up and running. In February 2009, DHL launched an upgraded internet tracking service, allowing for real time shipment tracking. The tool, called DHL ProView, would allow customers to follow their shipments across all stages of the delivery process anywhere in the world from any place. The solution provides updates through SMS-messages.
Country manager of DHL Express Singapore, Herbert Vongpusanachai, said that ProView was a display of DHL’s commitment to customer satisfaction and showed the innovations that enabled businesses to achieve cost savings.On top of transit updates, ProView communicated custom clearance status or possible delays. This gives customers the opportunity to spot possible bottlenecks that can be resolved with future shipments.
The solution provided by DHL back in 2009 is standard practice today, but at the time it was a great leap forward, giving more control to customers, who could now receive immediate updates regarding their deliveries. In turn, this prevents customers from having to reach out to DHL for updates on their shipments and in case they do, they can better articulate where issues arose.
Beyond the realm of customer support, Walmart has been investing heavily into its digital experience that helps deliver a seamless purchasing experience for its customers. In October 2022, Walmart launched its improved digital shopping experience in anticipation of the busy holiday season. It released a ‘skip the checkout’-feature where customers could directly order items from the item pages through a ‘buy now’ button.
Customers could easily find new deals through discounts marked in green on its pages. Walmart expanded its virtual buying experience to over 200 televisions through its iOs app, allowing customers to place products in their rooms before purchasing. These integrations enable a smoother customer experience, but they also serve as a means to reduce returns, hence decrease customer dissatisfaction.
Rolling-out self-service
Implementing self-service solutions can positively impact the customer experiences, as it enables them to problem-solve their issues without the need to contact customer service. Consequently, extending the options for customers to solve their problems will reduce the workload across customer service departments.
In August 2018, Zendesk detailed how musical instrument marketplace Reverb improved the customer experience through knowledge management and self-service solutions, which helped the company to stay ahead and meet customers wherever possible. Reverb was in a particularly tough spot as it managed a complex ecosystem of buyers and sellers. The company needed a solution that would be able to cater to a wide variety of audiences.
Reverb created a knowledge hub through Zendesk’s Guide product. The Guide-tool gives solution suggestions to customers to mitigate calls and emails. Reverb saw daily customer emails decrease from 350 to a more manageable 150. The team at Reverb added Zendesk’s Knowledge Capture solution to provide relevant information to agents, which decreased the amount of support tickets by 10 percent.
Director of Customer Engagement at Reverb, Daniel Santrella, said that by implementing self-service solutions, the team was able to reduce incoming customer tickets significantly. This freed up time for teams to focus on more time-consuming customer requests. Reverb saw its CSAT improve from 94 percent to 98 percent. While not an indicator of customer loyalty, automation allowed for Reverb to greatly improve customer satisfaction.
By reducing the incoming requests, Santrella saw stress decrease with the customer service team members. Before the roll-out, the team was overworked. Now, the team was able to properly manage their workload throughout the day. Agents are pro-actively updating and improving knowledge articles. They are encouraged to analyze why tickets have been created to better understand customer issues.
Managing growth
The need for self-service becomes especially important during a company’s growth phase, where it has to make due with limited resources whilst delivering a strong customer service to prevent churn. Rapidly growing Finnish food delivery company, Wolt, was in dire need of an automated solution that could manage the large streams of support requests from its customers and courier partners across 25 countries.
Despite having 3,000 employees across its customer service departments, the complex web of customer interactions could no longer be managed by these agents alone. Wolt needed a scalable customer service platform that would deliver personalized support to customers. Wolt opted for Intercoms automation and bot solutions to decrease workload at customer facing departments and improve response times.
Wolt extended the usage of Intercom to onboard new customer service agents in order to familiarize them with the service tools available. Wolt connected its ‘tech stack’ with Intercom to centralize all customer interactions and enable oversight of ongoing conversations. Wolt was able to decrease response time to less than 60 seconds and improve its CSAT to over 90 percent.
International Strategy and Operations Manager at Wolt, Pelle Blarke, said the company was impressed by how Intercom’s Inbox product improved handling times. Noting that during texts the amount of conversations handled per hour increased by 15 percent. Meanwhile, Intercom Bots gathered all the necessary information to provide agents with relevant details to deliver fast support.
Enabling customers
Intercom and Zendesk are mere examples of how the right tools and internal solutions can deliver strong and memorable customer experiences. Customer churn goes hand-in-hand with being unable to overcome obstacles. It’s not about the discount or how blown-away a customer is by the delivered support.
All boils down to delivering the promised services. Consistently and reliably. Once problems arise, customers should be empowered to solve them. Even if it means easing the unsubscribe journey. All systems should be in service of enabling customers and sorting their issues as fast as possible. Dutch ecommerce company Coolblue is well-known for delivering a strong customer experience, by enabling its customers to track their purchases wherever they can through a dedicated mobile app.
This simple logic can get lost, even at the most seasoned business and marketing professionals. While aggressively targeting and acquiring new customers looks good on the surface, if they leave as fast as they came, sustainable revenue growth is but a mere illusion.
