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Customer churn, or the advent of quantitative marketing (1/2)

Customer churn ou l'avènement du marketing quantitatif!
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Digital transformation continues to change the way we do business. Since its birth in the United States in the 1950s, marketing has focused on understanding consumer behavior. Borrowing its science from sociology and psychology, it has worked wonders in terms of brand positioning and, ultimately, sales.

Over the years, the marketing department has become over-spending, and the birth of the Internet has brought about a transformation. At the turn of the millennium, the new market metrics promoted by the nascent disciplines of SEO and SEA were click through rate (CTR) and cost per click (CPC). Provided free of charge and in real time, they even go so far as to communicate the names of prospects, accompanied by scores enabling customer contacts to be prioritized.

In this context, the notion of customer churn has gained in popularity since the 2010s. The advent of the Internet gave way to the computing power that data science needed.

A glossary of customer churn as applied to media

While the acquisition of new customers is essential to a company’s growth, customer loyalty remains the driving force behind profitability. Little used in its original sense, the term attrition – or churn in English – refers to wear and tear. As for customer attrition, it serves as a metric for customer loss. Customer churn is thus one of the most important indicators of customer commitment. In Switzerland, sectors as varied as banking, insurance, telecommunications and media are aiming for continuous improvement in their churn. How do they go about it?

Companies historically active in media and content publishing are faced with market saturation, new competitors – such as Watson as an online publication in French-speaking Switzerland, or 20min as a digital radio station in Switzerland – and price transparency that impacts their growth, leads to increased churn and reduces profits.

Here are a few figures to illustrate the point, as attrition rates vary from one sector to another. In 2020, the American company MPP Global has estimated an average churn rate of 5.6%, made up of:

  • voluntary cancellations (when the customer is not satisfied with the contracted service) at 4.2%.
  • involuntary cancellations (when the customer has had a problem with the service) at 1.4%.

On a regional level, American customers are more likely to churn than their European counterparts, with a churn rate of around 11% for NORAM versus 7% in the EMEA region and around 2% for APAC. According to the same source, the average churn rate for media subscribers was 6.87% over the same period, confirming the dynamism of this sector.

The 4 types of media churn

In the context of the publishing and digital media industry, unsubscribing occurs when one of the following conditions is met:

  • cancellation of the service by the customer, who decides not to renew his subscription for the following period;
  • voluntary or involuntary non-renewal of a fixed-term subscription service (i.e. trial subscription);
  • failure to make ongoing payments.
Customer attrition can be grouped into 4 types:
1. Deliberate & voluntary
This is the most common form of termination, when a customer actively seeks to terminate his contract with the supplier, e.g. in the event of:
-dissatisfaction with the quality of the service in general
-dissatisfaction with the quality of published content
-ineffective customer support
-perception of poor value for money
-departure for competitors
2. Accidental & voluntary
In this scenario, the customer must terminate the subscription for a fortuitous reason that does not reflect the quality of the service received, e.g.:
– financial decisions such as reducing household -entertainment expenses
– change in personal circumstances (e.g. international move)
– modification of general terms and conditions of sale, invalidated by the customer
3. Passive & involuntary
Here, the service is interrupted due to a payment or application failure, e.g.:
– payment refused by the customer’s bank (i.e. card expired)
– lost or stolen card
– payment processed outside bank opening hours and flagged as high-risk
– insufficient funds, etc.
4. Unintentionally planned
Uncommon form of termination where the service is interrupted by the supplier, e.g.:
– termination of contracted service
supplier offering termination to customers who do not use its services (i.e. Netflix)
– an external factor that prevents the service from – being provided (i.e. sports channels during the pandemic)
the 4 types of customer churn applied to the media sector

To quantify their customer churn, media companies most often opt for a Business Intelligence solution that enables them to calculate and visualize indicators such as the number of extrapolated churn for different past and present periods, the annual churn rate, or the evolution of the churn rate over time.

From customer to predictive churn

If the processes, technologies and skills of the media organization are advanced, predictive churn can be incorporated into the dashboard to determine the factors at the root of churn: it’s the answer to the “Why” question of customer attrition, wisely complementing that of the “Who”, i.e. which customer(s) might abandon their subscription in an uncertain future.

Less accessible than the first 2, the questions of “When” (“when would the customer be likely to cancel?”) and “For what” (“what alternative would they be prepared to stay for?”) can be addressed from the outset, or at a later stage.

While you wait for the rest of this article (2/2), find out how our team of data scientists calculates the the predicted number of emergency admissions [HERE] for a hospital.