Customer Strategy Case Study: Microsoft Retains Customers in the Cloud

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Microsoft's new service-based business model requires segmentation and churn strategies for an optimal customer experience.

Microsoft's new service-based business model requires segmentation and churn strategies for an optimal customer experience.

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  • 1. Customer StrategyCase Study:Microsoft RetainsCustomers in the CloudMicrosoft’s new service-basedbusiness model requiressegmentation and churnstrategies for an optimalcustomer experience
  • 2. 2The Challenge: Shifting focus from the product to the consumerChallenge:If you have a computer, chances are you have some experience withMicrosoft Office. The software giant has taken a new perspective oninnovation, and this time products are not the focus. Microsoft is beginning atransformation from a product-led culture to one designed around service.It’s widely accepted in the tech world that cloud and service-orientedinnovation is the future. Customers want to be part of a continuoussubscription model, using relevant products and services within the entiresolutions ecosystem. Success with this model requires improved customerrelationships. So alongside the launch of Office 365, Microsoft worked withPeppers & Rogers Group to create a customer retention and renewalprogram for the new cloud-based subscription model.
  • 3. 3The Approach: Fighting churn before it startsApproach:In the traditional product-focused business model, a one-time sale matters most. But in thecloud-based model, long-term relationships are critical. Customer acquisition costs aremuch higher than customer retention costs, making customer churn very expensive.Customer retention becomes essential to strong ROI. The project included learning aboutretention program best practices across industries and creating foundational models aheadof the Office 365 launch.Research revealed that common reasons customers churn include price, product/servicequality, customer need, and customer service. In addition, different customer groups tend tochurn at different rates, depending on attributes including the type of customer theyare, how long they have been customers, and their customer value. The team looked at howto mitigate risks across those and other dimensions. The four churn models to “build musclearound” include:• Predictive churn management to prevent consumers from considering whetherto churn.• Reactive churn management once consumers communicate their interest inchurning.• Moments of truth identification within the customer lifecycle that may trigger a churnor no-churn decision.• Win-back initiatives once a customer has canceled a subscription.The group chose to focus on predictive churn management, which is both the most essentialand also the most difficult to achieve. Much of the data exists is silos, so putting it all togetheris new. Microsoft currently knows which customers call into the call center and what productsthey use, but not what features within Office they use most, how long they’ve been acustomer, or what other Microsoft products and services are in their household.
  • 4. 4Approach Continued:By understanding the drivers of churn in each of these four categories with differentcustomer groups, Microsoft can mitigate the churn risk in efficient and effective ways.And because differentiated treatment is required to connect in a relevant way toconsumers, customer value management and segmentation become an extension ofMicrosoft’s retention strategy. The team hasbegun to develop models that segmentconsumers based on their lifetime valueto develop customized treatments for diffe-rent groups over time.Being predictive involves creating an end-to-end customer journey. Customers must be an-lyzed from and experience perspectiveto gather meaningful insight that helps createthe correct predictive models. The team iscreating a common set of metrics for the entirecompany to use, as well.The Approach: Fighting churn before it starts
  • 5. 5The Insights & Outcomes: Data capabilities raise revenueInsights & Outcomes:Microsoft’s initiative is backed by a newservice-oriented culture led by a newlyformed product intelligence group; which istasked with building the capabilities toanticipate, understand, and predict customerneeds to drive the next best action. Althoughit’s too early to garner any results, the teamcan point to last year’s Office 365 launch forthe small business commercial group as apossible predictor. That launch led to fastgrowth, which may be an indicator of successfor the consumer division.
  • 6. www.peppersandrogersgroup.comCorporate Headquarters:1111 Summer StStamford, CT 06905USA+1 (203) 989-2200COPYRIGHT © 2012. ALL RIGHTS PROTECTED AND RESERVED.The information contained in this document, much of which is confidential toPeppers & Rogers Group, is for the sole use of the intended recipients. No part ofthis document may be reproduced in any form or by anymeans, electronic, mechanical, photocopying, recording, or otherwise, withoutthe prior written permission of Peppers & Rogers Group.