Defining Attrition and Retention
When we ask Retailers what their biggest focus is one of the most common responses is “We want to reduce attrition and increase retention.” Most people think they are inverses but that is not the case.
Below is a lightly edited transcript of Episode 25 of the Inevitable Success Podcast with Damian and special guest Stephen Yu. (Listen Here)
Damian: I’m back here in the studio with Stephen Yu.
Stephen: Hello. Good afternoon.
Damian: Happy Friday. Hope everybody is listening on a Friday. So today we’re going to talk about a question we get a lot. We get questions about attrition and retention. And specifically I want to ask you, are they the same thing?
Stephen: It’s a different spot in the same timeline because everybody goes through the life cycle of being a buyer. In fact, it starts at the point where you’re not even a buyer. We call them prospects and prospects becomes leads. In the B2B world you further qualify into qualified leads.
Damian: So maybe we’ll back it up a little bit. Specifically how would you define attrition versus retention.
Stephen: So well I’ll say attrition is farther down the timeline.
Basically when you’re going to stop being a customer, that is attrition and the action that a company takes at that moment is churn prevention.
Retention is more like “Okay I’m still building relationships. I want to sell more things maybe cross-sell/up-sell. I want to know more of the value based proposition because I don’t want to just share random things with customers.” So that’s retention. How do you make things interesting for the customers? So we hold them back..as long as possible and maximize the value.
Damian: You know it’s one thing that’s interesting we were kind of debating this internally too and I think when you hear that at first my first reaction was “Oh there are like two different sides of the same coin.” Like you know if you don’t retain people then you have high attrition.
Stephen: That’s right.
Damian: But you know in some ways I think if you’re a proactive and you’re taking action like you should always use the word retention and attrition is like a KPI that you don’t want to have.
Stephen: So actually the subject, the people who are on the side of the coin are different. Retention is the action by marketers or sellers.
Stephen: Attrition is what customers do. Yes it’s the same continuum but in a different position in terms of timeline. And one side is that something that marketers do and the other side is more that customers status if you will.
Damian: Right. So where do you want to start on this?
Stephen: Well let’s go back to the whole funnel concept here because in the beginning it’s just from the big bang. No you don’t want to go that far back.
Damian: That’s pretty early. It’s 14 billion years ago.
Stephen: Let’s go back to the beginning of your business. In the beginning you don’t have a customer. You have to prospect and bring in more customers whether you’re in new or whatever. I mean the thing is this, we all know and we talked about one time buyer problem in the past. People leave.
The goal is bringing down the one time buyer, or the trialers if you will, but people do leave. That means acquisition and retention are continuous effort by the marketers. If you say you do just one thing. Well guess what? You’re going to go out of business.
Imagine a big barrel, which has a hole and the hole is people that are leaving your business and on top of a barrel you pour water in and that is acquisition but you’re pouring water into the barrel with a big hole. Now you want to make the hole smaller. That’s the entire churn activity and retention activity. And you want to make this water in the barrel more valuable – that is all the effort that we do during that CRM program right? But in the beginning you don’t have customers so that means you start pouring water into it that’s prospecting. And if it’s B2B they have further qualifying steps steps like lead, qualified lead, and conversion. I say that the typical funnel in B2C case is simpler because you don’t talk to everybody but why stop there after you convert? The game is not over.
You have to sell more to these people and it’s proven, there are many stats out there that is so much easier to have the existing customer convert and respond to your offers than having to convert a new customer. In fact, you know how I know? Let’s go back to the old direct marketing days…
Damian: …like 14 billion years ago?
Stephen: 10 years ago but the marketing is not that easy to do. It is so expensive to print these things so they always mix in all kinds of names. The typical size we use to deal with like 50 different list sources and one of them sits on top, the house file. We used to report differently because the response rate is so high for those guys like a 3x-4x.
Damian: Right. And when you say house file you’re talking your own customers and customers that are named.
Stephen: Exactly. So it’s like 4x better so there’s no question about the…
Damian: …prints cost the same.
Stephen: Why would you send something expensive out to non responsive people? Now those of us could figure out who to charge you more for.
Damian: That would be a good for them. Actually the post office is going after that but that’s what they would say. Exactly.
Stephen: They exist because of the commercial mailers by the way without all this commercial mail they (Post Office) would have gone bankrupt a long time ago. So they help themselves by helping us marketers.
Going back to the whole funnel, so why stop at conversion? You have to go farther. So let’s go farther. Somebody converts. Great. Now you have to build a relationship. I’ll call that the beginning point of the retention. But even before retention I even have another step called relationship building. That will be the welcome mail series with gentle suggestions based on the first purchase, you know, things that you just get to know each other. If they’re valuable invite them to the VIP program earlier than usual.
Damian: So this sounds like a list of proactive things you can do as a marketer to prevent churn and reduce attrition and create value. So all this money is all the words once.
Stephen: But that’s good because depending on what company you work for they have different words for different things so that’s what we’re trying to do is cover everything so that everybody understands. So I say there’s a King’s Road and there’s there a losers path. The losers path is that somebody signs on and don’t do anything and you let people slide through the whole attrition path.
Stephen: The other side is that you pamper them you treat them well. You try to understand what they are about and offer something that they would like. Like the royal treatment on the king’s path.
Stephen: In other words, more customization more personalization more customized product offering. Maybe they’re real IPs and you know what don’t just say that you know you’re important signed by CEO, actually invite them to some kind of exclusive opening or product introduction or whatever. Do these things and you know what. When people are sensing that you know what this message is for me it’s not about just mindless marketing push. They respond better. That’s the high-yield then. Yes eventually they will all disappear. For example, say what if you were selling a lot of apparel items to teenagers. Guess what? They stopped being teenagers at some point right? Or I’ve told you this like few times few episodes like I used to be a golfer. I’m not a golfer anymore. That means no matter how many interesting offers you me about golf, I’m not going to respond. People change not just because they’re sick of marketing messages but because we change what we do as marketers. How do you prolong that inevitable exit and during that time how do we maximize the value? The constant theme about this whole podcast is no you’ve got to change the way you think about this whole effort. You’re not just pushing the things that you want to push.
Damian: You just made me think of another episode that we recorded with Mike Ferranti. It was a conversation that I think ties very closely into this, the topic of that podcast was building a better business based off of better customers. One of the strategies that you can do to this is really outside of the box to proactively reduce churn, you know, increase retention is to go after higher potential customers and get worse.
Stephen: Well that’s just isn’t it. How do you know who’s potential if you don’t handle your data? That’s why we always start with the data. We don’t start with gut feelings or what you want to do or whatever. Hey guys, the scientific approach has been around for a few hundred years. Let’s take one, even for this measly marketing approach and let’s act based on empirical evidence that this guy actually has high potential. How do we do that? We have all the past history. We practically collect everything that people do. Every breath you make every move you make. So why? Why let it all go? This is not a guessing game. This is not some hocus pocus some magic trick. It’s all proven things that we can find out what people are up about and where they are in the attrition path. If you know those two things you can prolong the whole relationship longer and can sell more things at the same time.
[00:10:43] So I think you definitely covered a lot of you know answers to the question how do we retain more customers. Is there anything else that you’d like to add around attrition? Oh yes. How do I decrease attrition? Is it really just be more proactive sooner?
Stephen: Yes of course. Now like I said the first effort is to know where in the customer lifecycle you are. In other words, are you totally gone or are you on a path, where are you? You have to know that. How do we know? We all know like transaction basis that means we know how many weeks since the last purchase, how many weeks from the first purchase. We always know the things we even though the days between transactions by person by product category by a whole lot of things. That means we can. You don’t have to guess.
Actually we know that this guy has been out for like a few hundred days. He should have purchased about 2.5 times by now. Yeah you just have those statistics all the time in our database. Now the thing about it is, what are you going to do about it? Is it so far out that you’re going to start treating it as a win-back program or are you going to just remind it with a gentle nudge based on say some sale or a special invitation? That’s your choice. And our job is to let you know where they are on the path to attrition.
So no the answer is.you don’t treat the same because you could be in a different timeline one, and two what they’re about is different. So how you bring them back is about understanding what they were about because even for the guys who didn’t buy for 1000 days, you know what they used to buy. Don’t go out of their realm. So in other words, it is difficult to bring or win back some lost customer, yes it’s true. So you have to almost have a mindset of, you know what, this is like almost like a new acquisition program but you have one advantage if you kept a really nice database about everybody that bought from you. He didn’t buy anything from us for past 24-36 months but you know what they used to buy. You can always use that.
Damian: I think again, phenomenal insights on how to increase retention and prevent the attrition of your customers.
None of my customers will attrite today.
So Stephen I’m going to let you get back to your desk soon. I know this is a busy day for you because Fridays for us are normally release days so what are you working on?
Stephen: This is an interesting release because we’ve really improved our ESP. And when I say that we made a lot of user interface much simpler so that you can intuitively go through where am I send this email to, with what package, what creative and the like today in a manner just like airline reservation. So if you have some segments built already, just click on it you’re done in like five minutes. So that is a major improvement. And so we’re excited about that.
Along with that as we improve reporting package related to email campaigns a lot so you can really find out what worked. So instead of just showing openings and clicks and by campaigns and dates we show buy different views or by a creative segment. If you use the same segment 8 times you can even tell all those things and group by that and we have a new campaign dashboard that’s quite exciting so they can have a war room like environment where they know what’s going on here in past 12 months, 24 months. You could find that out with a click of a button. We’re quite excited about this new release because I think a lot of users will be right that their lives will be easier using this to screen.
Damian: Cool. And I know there is no rest. What are you guys thinking about and actually working on? What can we expect in the next few days?
Stephen: Well our theme is that we want to make things even easier for users. And so while we’re paving the road it’s really more automation. You could call different language about that robot machine learning which human intelligence whatever you call it but much of our BG is already automated. In other words, all the data in just terabits building reporting all the things automated. Now the targeting could be automated too by the way and what we are collecting is just more empirical evidence of what people are going after. And once you have that data we can automate a lot of things. In fact the lifecycle we just talked about, completely automated.
Damian: I love it. It’s done already.
Well thanks for that update. Anybody is listening you can go check out buyergenomics.com. See what Stephen is talking about and love to speak to you soon.