MIT Sloan’s Michael Braun just reported on his competing risk model designed to facilitate management of controllable and uncontrollable customer churn. Note particularly:
“Businesses often spend a lot of money trying to retain customers. Many direct their retention activities toward all of their customers and hope that enough respond for the effort to pay off. But some customers leave anyway. A more effective approach recognizes that customers are different and their likelihood of departing—a phenomenon known as churn in the business world—varies among individuals and over time.
Some customers churn for reasons a business can control. These customers may be unhappy with the price or product, or they may prefer a competitor. Others churn because they move away or die or go bankrupt—matters a business can’t control. An efficient strategy targets those customers likely to churn for controllable reasons and does not overspend on customers likely to leave for uncontrollable reasons. And when evaluating the success or failure of retention marketing activities, managers should take the incidence of uncontrollable churn into account.
With my colleague, David A. Schweidel of the University of Wisconsin, I devised a mathematical model that helps to resolve both the targeting and measurement problems. The model generates probabilities for when customers will churn. With the model and data on a company’s past customer retention, a business can determine which customers to target and what the payback is likely to be. The model can be used with any subscription or membership-based service, such as cable television, a health club, or direct-debit charitable donations.”