Statistical Methods in Customer Relationship Management

7.1 Introduction

Managers usually think customer churn is the end of a customer's life cycle. But it does not have to be the end of the life cycle. Companies can still win the lost customers back and give them a second life. Unlike new customers, lost customers have certain knowledge about the products and services of the company and have their own judgment on the attributes and functions of the products and services. On the one hand, it is easier to approach lost customers since they are familiar with the company. On the other hand, lost customers often switch merchandisers because they are not satisfied with the product, so it is not necessarily easy to change their attitude and persuade them to come back. We also have to consider whether it is worth trying to bring the customers back to the firm – not all customers are worth chasing after they leave the firm.

Once we determine when a customer is likely to churn (see Chapter 6 for a detailed analysis on determining the probability of churn), we have to decide whether it is in the firm's best interest to attempt to win the customer back. So, there are several key questions that should be answered. These include:

• Should we intervene with the customer churn?
• How should we approach the customers to win them back?

The answers to each of these questions will drive the optimal customer win-back strategy. There have been a few research studies in the area, although research in customer win-back is still scarce. We review the representative ...