Statistical Methods in Customer Relationship Management

2.4 The Impact of Customer Churn

Customer churn can be difficult to identify and can be harmful to a firm's brand image and profitability when it goes unnoticed. But with the great strides that have been made in technology, statistical modeling, and metrics, it is much easier for firms to achieve higher profitability from reduced customer churn [12]. But what many firms fail to realize is that the majority of customers who are in the churn stage will not complain or voice their concerns. A study on this found that an estimated 4% of customers in the churn stage will actually voice their opinions, with the other 96% lost without voicing their discontent. Further, about 91% of the lost customers will never be won back [13].

Customer churn contains several key measures and questions that must be answered in order to take a holistic view of the process. Engaging in active monitoring of acquired and retained customers is the most crucial step in being able to determine which customers are likely to churn. Determining who is likely to churn is an essential step. This is possible by monitoring customer purchase behavior, attitudinal response, and other metrics that help identify customers who feel underappreciated or underserved. Customers who are likely to churn do demonstrate ‘symptoms’ of their dissatisfaction, such as fewer purchases, lower response to marketing communications, longer time between purchases, and so on. The collection of customer data is therefore crucial in being ...