What is Customer Churn?
Customer churn refers to when a customer (player, subscriber, user, etc.) ceases his or her relationship with a company. Online businesses typically treat a customer as churned once a particular amount of time has elapsed since the customer’s last interaction with the site or service. The full cost of customer churn includes both lost revenue and the marketing costs involved with replacing those customers with new ones. Reducing customer churn is a key business goal of every online business. The Importance of Predicting Customer Churn
The ability to predict that a particular customer is at a high risk of churning, while there is still time to do something about it, represents a huge additional potential revenue source for every online business. Besides the direct loss of revenue that results from a customer abandoning the business, the costs of initially acquiring that customer may not have already been covered by the customer’s spending to date. (In other words, acquiring that customer may have actually been a losing investment.) Furthermore, it is always more difficult and expensive to acquire a new customer than it is to retain a current paying customer. Reducing Customer Churn with Targeted Proactive Retention
In order to succeed at retaining customers who would otherwise abandon the business, marketers and retention experts must be able to (a) predict in advance which customers are going to churn and (b) know which marketing actions will have the greatest retention impact on each particular customer. Armed with this knowledge, a large proportion of customer churn can be eliminated. While simple in theory, the realities involved with achieving this “proactive retention” goal are extremely challenging. The Difficulty of Predicting Churn
Churn prediction modeling techniques attempt to understand the precise customer behaviors and attributes which signal the risk and timing of customer churn. The accuracy of the technique used is...
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