By V. Kumar, Yashoda Bhagwat, and Xi Zhang
It’s a hypercompetitive market and you are doing everything you can to retain your customers, yet you know that no matter what you do, you will still lose some customers to competitors. The competition to acquire new customers is fierce. How do you maintain your customer base? Our research team at Georgia State University looked at a large national telecommunications firm and found that it can be profitable to go after lost customers and win back their business. While it may seem counter-intuitive to spend time and money on customers who chose to leave, the reality is that you can’t retain every customer and acquiring brand new customers is expensive. Luckily, the game is not over when you lose a customer and you can revitalize your relationship. To successfully win back profitable customers who are worth your effort, you need to think about three things:
- who is likely to give you a second shot,
- if they do come back, how long they will stay, and
- how much they will spend.
You don’t want to waste time and money chasing lost customers who will never come back or will quickly leave again. In some cases your relationship the second time around can actually be even better than the first- but before you go chasing after lost customers you need to know some basic things about the win-back process.
- Your relationship the first time around matters!
The win-back process does not completely wipe the slate clean. How lost customers perceive their experience with you before they left is a strong indicator as to whether they will trust you enough to give you a second chance. Our study found that customers who spread positive word of mouth through referrals in their first lifetime were more likely to come back. Customers who complained a lot were less likely to come back. Customers who experienced a service recovery were more likely to come back.
The takeaway: the better their first lifetime relationship with you, the more willing they will be to trust you again.
- Why your lost customers left in the first place can give you some important insights into how they will behave.
The study categorizes the reasons why customers defect into three buckets:
- for price related reasons,
- service related reasons, or
- both price and service related reasons.
Why customers left can help predict how likely they are to trust you again. The study found, customers who left for better deals were more likely to come back than customers who left due to poor service. Customers who left for both price and service were the least likely to come back. More importantly, the reason customers left can tell you how committed they will be to your relationship if they do come back. Intuitively it’s easy to think that customers who left for price related reasons will easily jump ship again when a competitor offers a better deal. Surprisingly, the study found that customers who left for price related reasons stayed with the firm longer than customers who left for service related reasons. Customers who left for service related reasons may have been harder to please and retain. However, customers who left for service related reasons also spent more each month than customers who left for price related reasons. Customers who left for both price and service related reasons switched to a competitor the fastest and spent the least each month.
- What you offer your lost customers to win them back has a lasting impact.
Of course what you offer your lost customers will impact whether they give you another chance or not, but it also has a lasting impact on how they will behave if they do accept your offer. You need to know not only what is most effective in winning back lost customers, but how it impacts how long they will stay and how much they will spend in their second lifetimes. Our research team conducted a randomized field experiment in which we sent lost customers a limited time price discount, a limited time free service upgrade, and a bundled offer. While the bundled offer was the most successful in reacquiring lost customers, those customers who accepted it also left the firm again the soonest and spent the least compared to customers who were offered either a price discount or service upgrade. Service upgrades were the least effective at winning back customers but the customers who accepted them also stayed the longest and spent the most with the firm.
So how can you use this information when designing a win-back program? The study conducted a simulation to see what you should offer customers based on the reason they left. Do you want to increase market share and win back as many customers as possible? Then target customers who left for price related reasons with a bundled win-back offer. Do you want to acquire long term customers? Then target customers who left for service related reasons with a service win-back offer. Do you want the customers who will be the most profitable in general? Then target customers who left for price related reasons with a discounted win-back offer.
Customer win-back can be a great last resort strategy. While you should always try to retain your customers you should remember that the ones that got away are not necessarily gone forever. You can win them back and have profitable relationships with them. So in a competitive market where every little bit helps, consider reacquiring your lost customers.
The article Regaining “Lost” Customers: The Predictive Power of First-Lifetime Behavior, the Reason for Defection, and the Nature of the Win-Back Offer, featured in the post, was co-authored by V. Kumar (Georgia State University), Yashoda Bhagwat (Texas Christian University), and Xi (Alan) Zhang (University of Toledo). It is available on the Journal of Marketing website.
V. Kumar (VK), the Regents Professor, Lenny Distinguished Chair & Professor in Marketing, and the Executive Director – Center for Excellence in Brand & Customer Management at Georgia State University. VK is recognized as the Chang Jiang Scholar at HUST; China, Lee Kong Chian Fellow at SMU, Singapore; and has received twelve lifetime achievement awards in various areas of marketing including the 2015 Distinguished Marketing Educator Award from the AMS and the Paul D Converse Award. VK has received the Sheth Foundation/JM Award, Robert Buzzell Award, Davidson Award, Paul H. Root Award, Don Lehmann Award, Tamer Cavusgil Award, and Gary L Lilien ISMS-MSI Practice Prize Award. He has published over 200 articles in scholarly journals in marketing as well as book chapters. VK has written over 15 books including Managing Customers for Profit, Customer Relationship Management, Customer Lifetime Value, Marketing Research, Profitable Customer Engagement, Statistical Methods in CRM, and International Marketing Research. VK spends his “free” time visiting business leaders to identify challenging problems to solve. Recently, VK has been chosen as a Legend in Marketing where his work is published in a 10 volume encyclopedia with commentaries from scholars worldwide. Finally, VK is the current Editor-in-Chief of the Journal of Marketing.
Yashoda Bhagwat is currently an Assistant Professor of Marketing at the Neeley School of Business at Texas Christian University. She received her PhD in Marketing from the Robinson College of Business at Georgia State University. Yashoda’s research is primarily motivated by real world business problems and she likes to solve challenging problems for managers using rigorous methodologies. She is particularly interested in better informing marketing strategy by managing customer relationships. She was chosen to attend the 2013 American Marketing Association Sheth Foundation Doctoral Consortium as a doctoral fellow and was a recipient of the 2014 GTA Teaching Excellence Award in recognition of her accomplishments in the classroom. Her work has appeared in the Journal of Marketing and Marketing Science. In her spare time she is a sports enthusiast, foodie, and dog lover.
Xi (Alan) Zhang is currently an Assistant Professor in Marketing, College of Business and Innovation, the University of Toledo. He received his Ph.D. degree from the J. Mack Robinson College of Business, Georgia State University. His research centers on solving relevant marketing problems by using rigorous methodologies. His dissertation titled “Managing a Profitable Interactive Email Marketing Program: Modeling and Analysis” won the Shankar –Spiegel Best Dissertation Proposal Award in 2013. One of his works won the Best Paper Award in the Digital Marketing Track of the 2015 Summer AMA Marketing Educators’ Conference. His research has appeared in the Journal of Marketing and the Journal of Marketing Research. He is the recipient of the 2015 GTA Teaching Excellence Award in recognition of his outstanding teaching performance. He currently services on the editorial review board of the Journal of Business & Industrial Marketing.