Churned customers represent a majority of the customer database for most online businesses. Re-engaging them successfully offers a huge opportunity to increase revenues.

In this article, we’ll show you how to accurately identify churn and soon-to-churn customers and successfully re-engage them, to grow your business through your existing customer database.

You will learn to:

• Define churn using your data
• Take action to win back churned customers
• Optimize your campaign to maximize results
• Re-engage churned customers to accelerate growth

Content Summary

Re-engaging Churned Customers: A Business Lifeline
Defining and Understanding the Importance of Churn
The Role of Data in Understanding Customer Churn
Taking Action to Win Back Churned Customers
Optimizing Your Campaigns to Maximize Results
Re-engage Churned Customers to Accelerate Growth

Re-engaging Churned Customers: A Business Lifeline

Across industries and continents, businesses devote resources to understanding why customers churn. This is because, in most businesses, churned customers are a significant portion of the customer database at any given point in time. For most online businesses, churned customers represent a majority of the customer database, presenting a huge opportunity to increase revenues if successfully re-engaged. Think about it for a moment: all those customers who stopped buying from you may have found better, cheaper or more enjoyable options among your competitors. Perhaps they had a bad experience with your company. Or maybe they just aren’t interested in your offering anymore – yours or anyone else’s (it’s not always personal).

In this article, we’ll show you how to accurately identify churn and soon-to-churn customers and successfully re-engage them, to grow your business through your existing customer database.

Defining and Understanding the Importance of Churn

In order to predict when customers may churn, or identify those who have already churned, we need to first define churn. What is Churn?

Churned customers are customers who made one or more purchases in the past, but who haven’t returned to make an additional purchase within a particular timeframe, indicating that they are unlikely to do so in the future.

Why is Churn Important?

Identifying churned customers, and gaining a more comprehensive understanding of their behavior, is vital for both increasing your company’s revenues and strengthening the relationship your brand has with your customers – two top priorities of any business. You’ll also reduce instances of negative customer experiences that can tarnish your brand’s image

Re-Engaging Churned Customers Increases Revenue

As churned customers consist of a large portion of the customer database at any given time, marketers are sitting on a goldmine. Failing to re-engage these customers means missing a huge revenue opportunity. Churned customers have already expressed interest in your brand and created a relationship with it. While they became familiar with your company, you were able to collect data about them (their name, geographic region, product preferences, amount spent, etc.). They know you and you know them. This mutual information flow has already created a relationship that can make it easier (and less expensive) to re-engage your customers, compared to acquiring new customers.

Re-Engaging Churned Customers Strengthens Customer Relationships

Once you take time to deeply analyze your customers’ behavior, you’ll begin to understand them better. What are their product preferences? What campaign offers did they receive? How do they react to discount offers? Did they churn immediately after making their first purchase, or did they have a longer relationship with your brand? The answers to these questions will be the key to discovering their distinct customer personas and creating campaigns that will successfully re-engage them.

Additionally, investing in churned customers will help reduce “negative advocacy” from customers who had bad experiences, something that can damage the perception of your brand. If you can identify these customers, you can give them the attention they deserve and prevent this, or even turn them into brand evangelists!

The key to understanding and identifying these customers is data analysis, which gives you a more comprehensive view of your customers, while also strengthening your relationships with them. These types of relationships are the ones that can lead companies to accelerated growth via their existing customer database.

The importance of winning customers back: it’s a two-way street!

The Role of Data in Understanding Customer Churn

One of the most important roles of data in customer churn is using it to determine when to label a customer as churned.

Many businesses don’t realize the significance of this decision, and automatically mark a customer as churned after a pre-defined period of inactivity (e.g., three months).

While this generic and systematic approach can sometimes be effective, it doesn’t take each customer’s individual behavior and history into account.

The Right Timing is Essential

Marking customers as churned at the wrong time is problematic for several reasons. First, if you fail to react quickly enough to engage your recently churned customers, the efficiency of your reactivation efforts decreases significantly. Second, if you misidentify customers as churned, you’ll waste time and resources trying to reactivate customers who will likely make additional purchases anyway. Another potential pitfall is that some of your customers will be classified into the wrong lifecycle stages, hindering your ability to treat your customers the way they should be treated. They may start to feel alienated, and you’ll see a decrease in spending and campaign response rates as a result.

Alternatively, businesses can form a more accurate and individual definition of churn for each customer by calculating each customer’s churn timeline. Put simply, the churn timeline formula considers the customer’s Expected Activity Frequency (e.g., how often they visit the site) and their next anticipated activity (make a purchase, deposit, etc.).

Churn timeline formula:

Churn Timeline = Time Sinxe Last Activity / Expected Activity Frequency

An Individual Approach to Churn

In order to get a clearer picture of why accurately defining each customer’s churn point is so important, let’s compare two customers: Cathy and Mike. Let’s say that both Cathy and Mike are customers of a business which automatically marks customers as churned after 60 days of inactivity.

Let’s take Cathy’s record of activity:

Cathy became a customer 240 days ago. Her last activity was 60 days ago, and she’s had a total of four days with any activity. Using this information, we can calculate Cathy’s current churn timeline. We’ll start by first calculating her expected activity frequency:

Cathy’s expected activity frequency:

Longevity = Total number of days Cathy has been a customer

Recency = Days since Cathy’s last activity

(Longevity – Recency)/(Number of active days – 1) = (240– 60)/(4 –1) = 60

Cathy is expected to perform an activity once every 60 days. Now we can plug Cathy’s activity frequency into the churn timeline formula:

Cathy’s Churn Timeline = Time Since Last Activity / Expected Activity Frequency = 60/60 = 1

Cathy’s churn timeline is now 1, meaning that we expect her next activity to be right about now. Since Cathy’s activity occurs every 60 days, on average, it just so happens that automatically marking her as churned after 60 days of inactivity is right on target. If we were to start our reactivation efforts soon after this point in time, we’d be more likely to succeed than if we waited until much later.

Calculating Cathy’s churn timeline lets us know that it’s a good fit, rather than just guessing. Now let’s look at Mike’s activity pattern and how it compares with Cathy’s:

Mike’s record of activity:

Mike became a customer 202 days ago. His last activity was 90 days ago. We can see that he’s had a total of four activity days.

We can now use our formulas to calculate Mike’s churn timeline. First, we’ll calculate Mike’s expected activity frequency:

Mike’s expected activity frequency:

Longevity = Total number of days Mike has been a customer

Recency = Days since Mike’s last activity

(Longevity – Recency)/(Number of active days – 1) = (202 – 90)/(4 – 1) = 37.3

Mike is expected to perform an activity every 37 days. Now, we’ll plug Mike’s expected activity frequency into the churn timeline formula:

Mike’s Churn Timeline = Time Since Last Activity / Expected Activity Frequency = 90/37.33 = 2.4

Mike’s churn timeline is now 2.4, meaning that he is already 2.4 periods beyond his last expected activity. Since Mike’s expected activity frequency is once every 37 days, waiting until Mike hasn’t been active for over 60 days is much too long.

Furthermore, now at 90 days, Mike’s chances of returning as a customer have diminished considerably. If we had attempted to re-engage him sooner when he had just started to churn, we may have decreased the lapses between his activity days and thus succeeded in preventing him from churning. For Mike, automatically marking all customers as churned after 60 days isn’t accurate, because it is not individually tailored to his particular behavior and buying history.

What worked for Cathy doesn’t work for Mike. In both instances, calculating each one’s individual churn timeline provides a more accurate indication of the point at which they should be considered as churned

Discovering Distinct Customer Personas

Now that we’ve defined customer churn, we can start analyzing these customers. Although customers churn for many reasons, gaining insight into why they churn can often be found in their historical behavior data.

You probably already segment your customer base according to geographic region, RFM and product preference. By observing your customers through additional angles, however, you can realize deep insights and discover distinct customer personas that will significantly help your customer marketing and retention efforts.

Let’s walk through an example.

Let’s say that, from among all our churned customers, we want to find the ones who we can easily re-engage using a specific offer for running shoes. To properly identify this group, we’ll want to identify those churned customers who are:

• Top shoppers who made their last purchase in the not-too-distant past
• Customers who browsed the latest collection of running shoes, yet didn’t make a purchase
• Customers who have logged in to the site recently
• Customers who have had a significant portion of past transactions from the footwear department

We’ll end up with something like this chart:

The intersection of these four groups of customers is our window of opportunity. Churned customers in this situation are especially valuable because once these customers return to purchase, they are more likely to remain active customers in the future.

How to do it? One option might be to send them a “We Miss You” campaign, with an incentive based on their product preference – running shoes. Coming up with the best campaign ideas for these persona-focused scenarios (and then testing and optimizing them) is where good marketers shine!

Taking Action to Win Back Churned Customers

You can win back customers by recapturing their attention.

After gaining a deeper understanding of your customers by analyzing their customer data, as discussed in Part 3, you’ll be able to create more relevant, personalized campaigns and tailor them to each group of customers. That will definitely get them to perk up and re-engage with you!

We’ll illustrate this concept by walking you through some examples of how to tailor campaigns for distinct customer personas.

Quick-Churn vs. Late-Churn Customers

Our research has found that customers can typically be divided into two churn segments: those who churned quickly after registration or first purchase (quick-churn), and those who churned after a longer period of activity (late-churn).

Quick-Churn Customers Need More Aggressive Campaigns

Since quick-churn customers didn’t develop as deep a relationship with your brand, marketers usually need to work harder to win them back. Creativity and experimentation (along with lots of patience) are necessary ingredients for successful retention with this customer segment.

Late-Churn Customers Are More Valuable

Our research has found that late-churn customers who return to activity are far more valuable than quick-churn customers. Why? First, they are more likely to return, as they’ve established a deeper relationship with your brand. Second, when they do return, they are more likely to remain active customers for a longer period after they return.

As a result, marketers should dedicate more resources to re-engaging this churn sub-segment and understand how this group can be further analyzed.

For example, late-churn customers of an iGaming site can be sub-divided into those with a remaining balance and those without. Those with a remaining balance can often be re-engaged with a simple reminder about their current balance that they can still use to play. Those without a remaining balance will require more aggressive encouragement to return and deposit more money.

Once you’ve started sending relevant campaigns to each distinct persona, it’s time to make sure they are working – and improve them if necessary.

Optimizing Your Campaigns to Maximize Results

In order to get even higher campaign uplift results, you’ll have to focus your efforts on identifying ever smaller and more focused customer personas. This is because the more ideal the match is between each campaign and each customer persona, the greater the effectiveness of those campaigns.

Ever-Increasing Personalization for More Effective Campaigns

Here’s a step-by-step process for systematically replacing relatively crude campaign-customer matches with highly-targeted campaigns sent to distinct, finelyselected personas:

1. Start with your best ideas for customer marketing campaigns.
2. Select the customer personas that you think will most likely respond well to those campaigns.
3. Run the campaigns to the selected target groups using test and control groups.
4. Measure the results of every campaign in terms of monetary uplift.
5. Identify sub-personas hiding within the recipient audience according to how each one responded to the campaign (in monetary terms) and isolate the sub-personas for which the campaign was extremely effective, somewhat effective and not effective.
6. Divide your original target group so that the top responders will continue to receive that campaign (with further tweaking and testing, as necessary), while creating (and testing) different campaigns for those sub-personas that did not respond as well.
7. Go back to #3: measure, optimize, improve and repeat!

This systematic approach to marketing optimization promotes dramatic ongoing improvements in campaign effectiveness. It does this by identifying those customers who respond best to existing campaigns and by isolating those customers who might respond even better if they received more effective campaigns.

Maximize campaign effectiveness with everincreasing personalization

Re-engage Churned Customers to Accelerate Growth

Growth is a key goal of every business. Preventing churn and re-engaging churned customers are both highly profitable strategies for accelerating growth.

Everything we’ve discussed in this e-book is what our Science-First Relationship Marketing Hub does for you – from properly predicting/identifying churned customers to discovering distinct personas to running campaigns as measurable marketing experiments to optimizing future campaigns.

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