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Solving Business Problems Using Mekko Graphics Improve Customer Loyalty and Reduce Churn Improve Customer Loyalty and Reduce Churn Research has repeatedly shown that existing customers spend more, purchase higher margin products and services, and are more likely to refer additional customers.1 So, how do you avoid the high price of constantly replacing existing customers with new ones? Knowing the reasons why your customers are leaving you or spending less with you can help you to respond to issues and retain more customers. Using Mekko Graphics you can examine revenue churn and determine the cause for controllable churn. Here is how… 1. Gartner, 2004: “Replace Customer Churn Predictions With Retention Analysis” Copyright 2012 © Knowledge Management Associates, LLC. All rights reserved. Improve Customer Loyalty and Reduce Churn Begin with Analysis Draw Conclusions Identify Areas for Improvement Copyright 2012 © Knowledge Management Associates, LLC. All rights reserved. Customer Churn Revenue Churn Analysis (2009-10) Total Company Revenue (2009-10) $981MM $1,000MM 2009-10 Revenue Churn Growth 15% $300MM $255MM $853MM New Customers 2009-10 Revenue Change ($MM) Total Revenue ($MM) 800 600 400 200 200 Net = $128MM 100 Increasers 0 Decreasers Churn = 15% -100 Lost Customers -$127MM 0 • • 2009 2010 -200 When examining revenue growth, it is important to understand the undercurrent of revenue churn Revenue churn is defined as the customer accounts that either decreased or were lost divided by the prior year revenue – In this case, -$127MM ÷ $853MM = ~15% revenue churn Copyright 2012 © Knowledge Management Associates, LLC. All rights reserved. Customer Churn Controllable vs. Uncontrollable Behavior Drivers 2009-10 Revenue Churn Controllable vs. Uncontrollable Churn $300MM 100% $255MM 2009-10 Revenue Change ($MM) 200 100 Uncontrollable Net = $128MM 80 Percent of Total Churn New Customers Increasers 0 Decreasers 60 40 Controllable Total Churn = 15% -100 Lost Customers 20 -$127MM -200 • • • 0 Behavior Drivers Not all churn is the same Some revenue churn is because of factors within the company’s control (“Controllable Churn”) – For example: poor customer service can lead to a customer defection Some churn is due to circumstances out of the company’s control (“Uncontrollable Churn”) – For example: an account lost when a customer went out of business in 2010 Copyright 2012 © Knowledge Management Associates, LLC. All rights reserved. “True” Controllable Churn = 11% Customer Behavior Drivers Behavior Driver Detail Q: Why did you reduce your spend with Company X? 100% Delivery Sales Other Percent of Total Churn 80 Price 60 Customer's Business Conditions Product Issues 40 Customer's Ordering Habits 20 Customer Service 0 Controllable Reasons • Uncontrollable Reasons The reasons for revenue churn can be isolated and quantified by doing a survey among customers – A Marimekko chart is an ideal way of showing the results of this survey because it clearly displays two individual dimensions of data Copyright 2012 © Knowledge Management Associates, LLC. All rights reserved. Improve Customer Loyalty and Reduce Churn Begin with Analysis Draw Conclusions Identify Areas for Improvement Copyright 2012 © Knowledge Management Associates, LLC. All rights reserved. What does it mean? Using Mekko Graphics to drill down into their data, this business was able to get to the root of its customer churn. In this case, the marimekko chart in the previous slide illustrates the following: • 75% of revenue churn was due to controllable causes • Of that, 60% was due to customer service or product issues Using this type of analysis you can zero in on the causes of controllable churn in your business. Supported by this data this business would be wise to investigate ways they might improve both their product and processes to provide better customer service and a more fulfilling product experience. Copyright 2012 © Knowledge Management Associates, LLC. All rights reserved. Improve Customer Loyalty and Reduce Churn Begin with Analysis Draw Conclusions Identify Areas for Improvement Copyright 2012 © Knowledge Management Associates, LLC. All rights reserved. So Now What? Ask the right questions: In this example a reasonable search for improvement areas could begin with questions such as: • Are employees properly trained to address customer issues? • How could feedback from customers be collected earlier in the cycle so that issues could be resolved and defection prevented? • Do employees have the necessary skills to produce the best possible products and services? • Is emphasis placed on ensuring a positive off the shelf experience with the product? Asking the right questions based on your analysis can help you identify key areas for improvement to increase customer loyalty and reduce controllable churn. Copyright 2012 © Knowledge Management Associates, LLC. All rights reserved.