Ramgopal Prajapat:

Learnings and Views

Customer Life Cycle and Customer Retention Management

By: Ram on Dec 11, 2020

The Customer Life Cycle typically has 3 phases –Acquisition, Growth, and Retention.

Customer Life Cycle

Customer Acquisition: Focus is targeting & reaching out to prospects, explaining to them about the products and services, and on-boarding the customers.

Customer Development/Build/Growth: In this phase, organizations leverage the existing relationship for growing the engagement with newly acquired customers or existing customers. So, the focus is both on increasing the level of engagement on the existing product or relationship (i.e. spend/balance build on credit card) and identifying customers’ needs & soliciting for the right product (i.e. cross-sell a credit card to mortgage customers).


Customer Retention: The most valuable customers are the most sought after customers by the competitors. The organizations have to develop strategies to manage and retain the most valuable customers. Acquiring a new customer is 3-5 times more costly, but still, organizations are finding it difficult to retain their customers.

Customer Retention Management has few additional dimensions and answers the questions
Customer Retention Management

  • Define attrition: How to define attrition or disengagement or usage drop?
  • Model attrition: What are the significant drivers indicating characteristics of attrition or disengagement or usage drop?
  • Reasons of attrition: Why are customers attriting from the organization? Identifying reasons could be one of the challenging steps. Model variables are not the causes, they only explain the variance.
  • Retention Strategy: What offer construct can be given to the customers? Who should be targeted for retention and who can be left out? Retention offer not only incurs marketing cost but also involve a margin forgo (additional reward points or interest on saving product or reduced interest on the mortgage); so organizations have to be very careful in selecting right customers for retention campaigns.
  • Campaign Design and Execution: Setting up campaign measurement and execution framework to execute the right interventions for retention. How do you set up the right test & control group, so that the organization can measure the success of a campaign and corrective actions can be taken? What channel or/and combination of channels to be used for targeting the customers?


Customer Attrition or Closure or Churn

Different terminology is used for the closure of customer relationships with an organization. In banking, it is typically called customer attrition. But in the telecom industry, closure of customer relationships is called customer churn. In the insurance industry, customers close a policy and buy a policy from the competitors and this is sometimes called Switch and the analysis as Member Switcher Analysis. In a few other industries, attrition is also called Customer defection.

Attrition is typically measured as % (Number of customers closed in a month)/ (Number of customers in the previous month)
Also, note that quite a few times closure is on a product relationship instead of at a customer level. For example, a customer has a closed credit card relationship but still holds a few other banking products with the bank.


Customer Disengagement

In a few customer relationship scenarios, the customers may not be closing the relationship but reducing their level of engagement. The reduction in the level of engagement may be defined based on the scenarios. Some of the scenarios are as follow.
Spend Disengagement: Drop-in spend level (on credit/debit card) for a customer is called spend disengagement. Defining drop can be tricky and it depends on various business factors and drivers. For example: if a customer drops his spending by over 50% then the customer is defined as disengaged customers.

Balance Attrition: In a saving or transaction account, the size of engagement is measured based on the level of balances carried by the customers. Reduction in the level of balance is called Balance Attrition. Balance attrition can be measured and analyzed both at a portfolio level (across customers) and at a customer/account level.
Usage Drop: In telecom and some other industries, a customer may reduce usage (call volume in frequency or monetary amount), and based on the level of drop, one can define usage drop indicators.


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