Improve the efficiency of your
customer retention management
It costs as much as six times more to get a new customer
than to keep an old one. Yet too often companies take their
customers for granted or don’t look for opportunities to
increase revenue from perfectly satisfied customers.
And in a slow economic environment when access to new
markets and customers is more difficult and expensive, 36%
of businesses in a recent survey* say they have found this to
be a key issue that they need to address. In these conditions it
is even more critical for companies to develop and retain their
current customers, focusing on those who are of higher value
and profitability. Of all business issues, customer attrition
is near the top in its effect on profit and loss, and 19% of
companies have already identified that the economic crisis
has caused them to lose customers.
To help our clients achieve a detailed view of customer
attrition and other customer-facing strategies and processes,
Ernst & Young has developed a customer practice within the
Global Advisory practice, focused on assisting our clients
with their customer management and revenue-generation
performance improvement efforts.
Our Customer Advisory professionals work in multidisciplinary
teams to take an integrated approach to each step of the
customer lifecycle, from acquisition to attrition management.
Through Ernst & Young’s global network, we can select from
experienced resources all around the world to assemble a
team with the right competencies to serve you.
To find out how we can help, please contact our Customer
Advisory professionals. We look forward to working with you.
*About our survey
At Ernst & Young we have an interest in understanding how companies are reacting to the
current crisis and seeing if there are opportunities to learn from their experience and best
practice. To that end, we worked with the Economist Intelligence Unit in June 2009 to interview
over 300 senior executives from major companies around the world to see how they are being
impacted by the economic crisis and what they are doing about it across their business.
2 Customer attrition
Some initial thoughts
the large range of products and services
Retaining the This new world is competitive in ways that
it’s never been before. Ask any company’s they are offered. And with all the readily
best customers is customers how many times they’ve been
approached and aggressively pursued
available information customers have
access to today, they see their choices, they
becoming a top by their competitors. And then ask that
company if it can be optimistic about
are very aware of the protections they are
provided by laws and regulations and they
priority for all keeping its customers happy on a day-to- have become more demanding and expect
day basis. much more from companies. Moreover,
companies in all The number of competitors has increased
customers don’t feel obligated to be loyal
to any particular company, and therefore
sectors. and, due to globalization, competition is
look for the best price, experience or
no longer limited to local companies —
service they can get. In times of economic
global companies are competing as well.
downturn, it is not surprising that price
This increased competition has been
becomes even more important to the
triggered by the fading of physical as well
as sector barriers. Little differentiation
between products and services has allowed Organizations with high rates of attrition
competitors to copy from each other, often point to commercial reasons,
driving the customer to perceive price as such as strongest competition in the
the only determining factor between one marketplace, price or downturn, for
brand and another. In our survey, 58% of losing customers. However, customers
companies say that competition on price leave due to commercial reasons only in
has increased as a result of the downturn a low percentage of the time. The main
and generally this has caused many reasons are a bad experience or perceived
companies to lower their margins in order indifference from the company. But before
to stay competitive. seeking to identify why customers leave
your company, and determine the actions
All of this has prompted customers
you may take to change this trend, first take
to become more educated in order to
the following three steps:
understand the slight differences among
1 Identify and measure all types 2 Determine and prioritize who 3 Define a proactive customer
of attrition and recognize their your high-value customer(and retention strategy, personalized
impact. therefore the ones you want to and adapted to the same profiles
retain) are through: and segments.
Take the concept of “inactivity”
into account to define, measure • Customer value models Put loyalty programs to work for
and fight attrition. you.
• Customer segmentation
Customer attrition 3
Attrition … so what’s attrition?
Beyond “traditional” Companies have most often focused their
time and resources on customer acquisition
2 Partial: the customer changes
(reduces) the product mix.
attrition, there and development, and have not paid as Some of this is normal — for example,
much attention to retaining the customers cancelling a child’s account when he or
are other types of they already have — not even their highest she has grown up.
value and most profitable customers.
attrition that need When most companies talk about attrition,
For some, a change in a customer’s
product mix means attrition, but for
to be identified and they are referring to those customers who others it is considered a new customer
have completely left the company by closing
prevented. all accounts or ceasing all interactions.
acquisition. For example, if a customer
transfers all his or her money from
However, this is just the tip of the iceberg; one bank branch to another within the
companies must also consider those same bank, this might be attrition for
customers who maintain their accounts one branch and customer acquisition
or fidelity cards but are simply no longer for the other.
active. Companies must measure and
manage all dimensions of attrition, not just 3 Hidden or silent: the customer doesn’t
what many define as “traditional” attrition. “officially” leave but decreases or ends
his or her activities with the company.
There are three types of customer attrition:
All types of attrition must be identified
1 Total or complete: the customer and managed, and different strategies and
ceases all interactions with the actions must be defined and implemented
company in two ways: in order to reduce the attrition rate within
• Nonvoluntary: the customer is organizations. Hidden or silent attrition, the
deceased, has moved to a place most frequent and yet the least identified
where the company has no and managed type, makes it necessary to
representation, etc. This type cannot add a new concept in managing customer
be avoided. attrition: customer inactivity.
• Voluntary: the customer explicitly
cancels all accounts, contracts or
relationships with the company. This
can be difficult to anticipate, as it is
most often a direct consequence of
a perception of bad service, in which
the customer decides to change
companies almost literally overnight.
4 Customer attrition
Add the word “inactivity” to your
The concept of The concept of active versus nonactive
customers can help companies determine
The same is true in the retail sector,
where there can be silent as well as partial
“inactive customer” — and even predict — attrition, giving them attrition. For example, a customer could
purchase fresh food in a local market and
a more realistic picture of their customer
enriches and helps portfolio. Inactivity can be thought of go to a supermarket to buy canned foods
as an early stage of attrition. Indeed, and household articles. A customer may
define strategies to especially in some sectors, attrition is change his or her behavior pattern and
progressively reduce his or her “share of
retain customers, something that does not always happen
abruptly one day. Rather, it is a path, wallet” or the purchasing frequency with a
especially in some a progressive detachment that can be
detected and even reversed if appropriate
retailer, without the company realizing that
this customer is leaving for the competition.
sectors. and personalized actions are taken. Take now the utilities sector, where in some
Think of a bank customer. Perhaps the countries customers normally switch from
customer does not take the time to cancel one company to another. They are one day
a current account, but simply leaves the your customers, and the next one they
account open with the minimum amount have left your company; they do not hire a
required, and instead uses a different bank company for their heating and another one
for daily transactions and savings. He or she for their hot water. Inactivity, as opposed to
then cancels a debit card and opens a term the previous examples, is not a word that is
deposit at a different bank that offers better that relevant in this sector.
conditions. Little by little, the customer
reduces the relationship with the first bank.
This bank may not identify the problem
since this customer did not deliberately
express the determination to switch banks.
For this bank, this customer is still “its”
customer, though the fact is, he or she no
longer “belongs” to them. The concept of
inactivity is crucial here to identify and even
anticipate attrition. Experience shows that
in the financial sector, for example, hidden
attrition represents up to 80% of total
Customer attrition 5
Different customers take
different attrition paths
Customers behave differently, have 1 The techniques used for customer
different needs and expectations and … they segmentation have evolved and
leave differently. Sophisticated companies now cover a complete range of
have begun to define differentiation variables allowing the identification
strategies and processes to ensure of homogenous groups not limited
they adapt their products and services, to purely socio-demographic criteria.
pricing strategies, commercial messages The integration and management of
and promotions to different groups of all this information should take place
customers. In addition, the differences with statistical models and databases
in the way customers behave and react prepared and structured to respond to
when their needs and expectations are business needs.
not fulfilled need to be identified and
2 Once all profiles have been
incorporated into the right retention
identified, their main characteristics
strategy. When developing customer
should generate an offer for each
retention strategies, most companies do
segment and lifecycle phase so
not differentiate nor classify their existing
the organization has products and
customers through segmentation in order
services available to meet customer
to adapt the strategy to each type of
needs throughout the entire customer
customer and their attrition pattern.
lifecycle. This customer focus allows
you to study their evolution and
therefore their potential needs, giving
them a more personalized and solid
service. It also helps point out the
different ways customers may leave the
company and different ways of reacting
when a need or expectation is not
fulfilled by the product or service the
company is offering.
3 Retention actions must be defined
for each group in much the same
way. The key factors that influence
customer fidelity vary depending on
the perspective, sector, products and
customer type. For this reason, you
must first make an analysis of the
causes of fidelity or value points in
each of these segments. Then, you
must define and implement retention
actions which are adapted to different
customer profiles, to ensure their
efficiency and effectiveness.
6 Customer attrition
Proactive, not just reactive
At the moment, most companies only Defining and implementing predictive
Reactive strategies measure total or complete attrition and models to calculate the probability a
customer might leave a company are
are not enough when adjust their strategies accordingly as a
reaction to changes in their customers’ the first steps in this global retention
it comes to dealing behavior. In many cases, it’s too late –
the customer has already made up his
strategy. There are different algorithms and
techniques that can be used to calculate a
with customer or her mind. However, the possibility of score, but these techniques alone are not
enough. A solid and robust methodology
anticipating and preventing attrition with
attrition within proactive strategies depends on the sector must also be applied to ensure the results
or product/service, and it’s more difficult are accurate and applicable to the company.
organizations. in those sectors where total or complete An individual score, which measures the
attrition is less common. As previously attrition probability for a customer, can be
discussed, if you take the banking or retail calculated. But if this information is not
sectors you will find there is a much higher used the right way – proactively – then, it
impact of silent attrition, thus making may provide little or no value.
proactive and preventive strategies easier
to define and implement. And finally, companies must decide which
customers they want to retain. It is not
Companies need to focus on a more realistic to think a “zero attrition rate”
proactive approach: can be achieved. In fact, there may be
1 First, detect when a customer has a customers an organization may not want to
high probability of attrition. keep. Prioritization is the right action here.
Profitability, lifetime value or customer
2 Be ready to act before this takes potential may be some of the criteria used
place. However, it is not efficient – and to determine which customers to actively
not even realistic – to try to retain all retain.
3 Therefore, identify high value or
more profitable customers and focus
on them. These are the customers
companies should spend all their
available resources on to retain them
and make them as loyal as possible.
Customer attrition 7
High fidelity, low attrition
Congratulations! You have now identified, • Intensity refers to the frequency
typified and measured different types of the relationship as a purchase or
of attrition within your customer base, simple interaction. In order to achieve
incorporating the concept of inactivity so customer affinity, the company has
that at risk of leaving the company have to build strong value ties that are
been covered. Moreover, after identifying hard to break. Constant and two-way
different attrition patterns, you have communication may be the best way
decided, according to customer value and/ to confirm the company is following
or profitability, which customers are worth the right path and creating a feeling
retaining. You are almost there, but you still of personal involvement. This is in
need to design and implement successful stark contrast to mass marketing.
retention strategies to achieve your main Individualized actions through products
goal of reducing the attrition rate, making and services must be focused on
certain you are retaining the best and making the customer feel a personal
most profitable customers. connection with the company.
The next step might sound obvious, though • Profitability is the last objective.
it is not that easy to develop and implement. Its achievement should be defined
You must strengthen the customer’s for each of the profiles identified by
relationship with the organization to the organization – remember not all
facilitate the subsistence and growth of the customers are equal. Companies should
company. concentrate on designing different
policies to foster long-term profitability,
Customers fidelity In order to increase customers’ fidelity as
a means to reduce attrition, it is essential
while at the same time being careful
not to over-saturate these profitable
aims to create a to manage the duration, intensity and
profitability of the relationship. But
customers and risk driving them away.
long-lasting, intense, market conditions and customer particulars Although it is not an innovative concept,
can dilute fidelity. customer fidelity is currently reinventing
and profitable • Duration refers to the techniques
itself as a new marketing branch and a way
of understanding customer relationships
relationship. used to maintain the continuity of the
customer within the company. The offer
generated should meet the customer’s Customer fidelity has become
needs, which should have been an unavoidable mission for any
previously identified depending on the organization, but very few companies
segment. The fulfillment of expectations have done it successfully. Too many
through products and services is a key programs rely on price or gift giving
aspect. Critical to this success is the as their focus. The prevailing mind set,
requirement to reduce the gap between focused on simply retaining market share,
customer expectations and actual breaks all the fundamental ideas of fidelity
delivery. as a behavioral philosophy that should
infuse the entire company.
8 Customer attrition
A change of such magnitude requires The organizations that already apply this
an important technological display - have an advantage over their competitors
more and newer technology to deal since they have information about their
with more detailed and complex data customers’ historical transactions. They also
- and reorganization of structures and have channels to increase contact with their
hierarchical systems toward a market customers and establish a communication
orientation. Therefore the implementation path that allows them to identify new value
of fidelity strategies has certain costs, which points. Once this information is gathered,
can seem relatively high depending on the the organization should create strong ties,
variety of field techniques, tools and final attending to the customers’ requirements
benefits obtained. For this reason the first and providing a personalized quality service.
step is to identify high-value customers on
Knowledge is best structured in seven
which to apply these strategies, taking into
global strategies, which define the main
account both present and potential/future
value points of the customers, facilitating
understanding, evaluation and prioritization
as depicted on the following graphic.
Human Customer care/
resources customer service
Brand image Product
Let’s take a closer look at each of these seven elements.
Customer attrition 9
1. Commercial model
Assigning fidelity The commercial model allows you to get
to know customers in great detail through
For this reason, it is important to draw a
value proposition according to segments.
objectives and business intelligence in order to adapt This “adapted-to-segment” value
proposition defines the need, product
fidelity plans to their particular needs,
planning sales wants and expectations. It also helps satisfaction, message to be delivered and
you plan and systemize all contacts, and the channel that must be used to do so.
actions, in time, can encourages a constant relationship through Also, intensity must be specified to be able
to maintain the relationship for a period of
help establish a fluid commercial actions instead of launching
random and mass campaigns. time, avoiding commercial saturation. And
contact with the Business intelligence allows the
you must be able to generate an indicator
that allows the identification of higher-
organization to transform information
customer. about its customers into knowledge for
attrition rate customers, to better prioritize
sales actions, focusing on those customers
better decision-making. at higher risk, with the highest value for
A better understanding of customers, your organization.
behaviors, preferences and trends allows
you to adapt the marketing mix in order to
increase the efficiency of fidelity strategies,
adding to their chances for success.
10 Customer attrition
“Processes” are internal functions and Multichannel processes allow:
customer service. The integration and
• A more direct approach to the customer,
coordination of all customer-related
thereby solving geographical and time-
processes under a customer focus increases
zone limitations and offering constant
the ease of transactions as well as the
flexibility of the organization toward market
changes. • Personalized communication, adapting
the message to the channel and the
Take Zara, a global fashion boutique
chain, as a good example of how to adapt
processes to increase customer fidelity. However, presence alone is not reason
The company has modified its design, enough for fidelity. To be effective, the
manufacturing and logistics processes to transactions generated by each channel
dramatically raise the expectations of its must be monitored and researched
customers, and therefore the way they correctly. To do this, the organization must:
behave. Zara updates its clothing and
• Make sure it is capable of internally
fashion accessories almost every week, so
responding to all of its channels
the shopping experience is always fresh.
Not many customers are willing to return • Create a two-way communication that
every few days to a fashion boutique to is a source of information regarding
check if a garment is in stock or to see if customer characteristics
the new fashion trend has already reached • Integrate all channels as a source
the shop, but Zara’s customers do. Zara of knowledge and contact with the
has adapted its processes to make it easier customer
for its boutiques to keep customers better
informed and therefore satisfied. This, in To successfully exploit a multichannel
Multichanneling turn, has increased satisfaction among
strategy and the transactions it
produces, a company must coordinate
allows you to respond Multichannel is very important when it
and focus alternative channels as a means
of complimentary and structured customer
to the customer in a comes to customer processes. Companies
need to ensure that their customers are
contact under a unified marketing strategy.
coordinated way and well served when they cross channels.
The exponential growth of alternative
through the channel channels has monopolized organizations’
efforts to be in all of them with the
they choose. highest possible level of presence.
Customer attrition 11
3. Customer care/customer service
Customer service is As it can be difficult to differentiate yourself
in a market where products have become
Personalization, at any level, requires a
broad understanding of the customer in
the most powerful commoditized and largely similar, customer order for it to be interpreted as a differential
value. This can be complicated if we take
service has become a differentiating factor
leverage to customer and a central axis for customer fidelity. into consideration the speed of market
Our survey showed that 52% of companies change and the fact that this obligates the
fidelity — it helps are currently scrutinizing their customer organization to establish continuous contact
with the customer.
create and develop relationships more closely and seeking
ways to strengthen these relationships, no Fortunately, software developers have
an emotional doubt through improved customer services.
Customer services can add the value that
created a variety of complaint management
systems that allow customers to manage
attachment with differentiates your company’s products claims via video conference. The customer
from those of other organizations. simply connects to the web using the
customers. The main efforts in this field are focused software and then can meet face-to-face
on achieving a high level of quality and with the manager that has been assigned to
personalized treatment in products/ solve his or her problem.
services offered. You must not forget that
the planning of proactive contacts before,
during and after a purchase or contract of a
product/service allows you to identify areas
of improvement and value aspects that
increase customer satisfaction.
The complexity resides in identifying those
aspects that provide value for each of the
segments or customer profiles so they can
be linked back to the offer created for each
12 Customer attrition
In a mature and very saturated market in Therefore, differentiation begins in the
which innovation is quickly copied and even creation of a complete offering (products
improved, differentiation through product and services) that is adapted to the
attributes is not sustainable over time. particulars of each segment, identifying
Therefore, customer attention and all other the customer lifecycle. The development
added services become the main value of this portfolio should be done with a
elements. If executed properly, services can customer focus:
increase fidelity, and even entice customers
1 Segment the customer portfolio.
to pay a higher price for the same product.
2 Identify the needs of each segment.
Differentiation in a These services can be related to the
products, or be independent, associating 3 Design products and services that
customer-oriented values to the organization’s image,
increasing the cost for a customer to
fit best with each segment and give
higher value. Establish a price strategy
offer should include switch. Apple found the best way to fight which is adapted to customer segments
- pricing should be established for
its competitors was to innovate and — at
services as the the same time— to identify and target a each customer profile according to
customer segment that would become real the customer’s value, which can be
differential element, fans willing to pay almost any price to get used as a reference to apply discounts
not just the product its latest gadgets. In this example, Apple
has added value by creating products that
and advantages. 40% of our survey
responders say that they have
itself. have become part of its customers’ lifestyle,
making this the main differentiator and
launched new products and services
in the last 6 months, and 55% say that
creating a stronger link with segments of their pricing strategy is under greater
customers less sensitive to price. scrutiny as a result of the downturn.
4 Develop a communication plan that
standardizes and plans the messages
and channels used to contact the
Customer attrition 13
5. Brand image
Brand image can also Brand image includes all actions geared to
reach a predetermined position and level of
Why do millions of customers across the
world pay more for their coffee if it’s
contribute to fidelity notoriety within the market and minds of Starbucks? Another example: a plain small
door, only large enough for kids, has been
customers. In sectors where products are
by creating stronger intangible and many transactions take place the differentiating element for Imaginarium,
from a distance, confidence is a crucial a toy chain that has managed to have kids
links with customers. factor and 38% of our survey responders asking their parents to go to the shop with a
are watching their brand and reputation special entry for them!
even more closely than usual during the Sponsorship, reinforcement of traditional
downturn. values and charity work are some examples
The success of a brand resides in its of strategies to create a brand image that
positioning and differentiation from the inspires confidence and respect, and makes
rest of the competitors in order to reach a customers want to become part of a family.
strong emotional attachment with the
customer. When this is achieved, fidelity is
14 Customer attrition
6. Human resources
The direct influence human resources Training and employee involvement can
strategy has over customer fidelity, help to detect customers that are unhappy
especially over customer service, can be with the organization. Proper training can
undeniable. For this reason, we will look teach employees how to act on customer
at it individually, as a separate strategy. dissatisfaction, and is an important element
The objective is to involve and motivate to proper care and retention of a company’s
employees to make a positive effect on most valuable customers. And never forget
satisfaction by improving customer care, that it is extremely difficult to increase
service and attention, and therefore customer fidelity with unhappy employees.
consolidate customer fidelity. The first step to achieve customer
satisfaction is to have satisfied employees.
Think about this the other way around.
The fact that you are chosen by customers
as their preferred supplier may have
something to do with the fact that the
best people in the world want to work for
you. Customer satisfaction and employee
satisfaction go hand in hand.
Customer attrition 15
7. Loyalty programs
Loyalty programs do Loyalty programs are tools used to better
know, acquire and retain customers.
Regardless of which loyalty model your
company chooses, it is always necessary to
not attach customers This practice has spread quickly in a number
both have customer segmentation and keep
in mind the following:
by themselves, of sectors, especially in distribution and
finance, making the loyalty card the most • Customers value direct rewards obtained
but they allow the used product. The main challenge lies in
designing an efficient loyalty program,
by points, and the treatment and
services received from the organization.
company to know identifying the segments that are targeted, • The program should serve as a source
their values and the actions to which they
and retain customers are most sensible.
of personal and behavioral information
from the customer to provide a more
long enough to work Almost all the loyalty programs fall under
one of the following categories:
personalized and satisfying treatment
and service to the customer.
on the other levers. • Financial cards: the objective is to • The market trend is to define and
increase consumption, which serves implement programs that have more
as a key to all advantages that fidelity than three types of advantages.
provides. Example: American Express • It has to be dynamic in order to be
Membership RewardsTM. adapted to the segments’ changing
• Non-financial cards: mostly used in the habits, which the strategy is targeting.
retail sector, the objective is to gather • A criteria or metric has to be defined
personal and purchasing information through which the success of the
from your customers and at the same campaign will be tracked and measured
time gratify them with benefits and in order to identify improvements that
rewards. Example: Europcar – Privilege should be made. Developing programs
Card. according to segments and applying
• Multifunction cards: they are called them to control groups allows you to
“smart cards”, thanks to their large evaluate the response customers had
memory capacity and the wide range towards a given action.
of possibilities to apply them. But the The success of these programs has an
expense required for implementation important communication component:
prevents smartcards from becoming making the customer feel a status
common in the mass market. improvement through the program. In many
cases, what is really important is not the
reward itself, but the fact that the customer
feels he or she is important enough to the
organization to receive such a reward.
16 Customer attrition
This paper has described and guided you After reading this article, you should now
through different concepts and components be aware that though customer attrition
of retention strategies, helping you is becoming increasingly severe for
understand how to better identify and organizations, it is not irreversible, and it is
manage customer attrition. possible – though sometimes not easy - to
retain and attach your best customers if you
New words and concepts may have been
face and approach this issue the right way.
raised for you, and by now you may be in
the position to think of attrition in a way you To find out more on how to define and
have never done before. New words and implement strategies and processes that
phrases like “inactivity,” “hidden attrition,” can be put to work for you to help reduce
“proactive strategy,” “attrition path,” the attrition rate of your company and
“predictive score” and “segmented value assist in building long-lasting relationships
proposition” should now sound familiar to with your highest-value customers, do
you. not hesitate to contact us. At Ernst &
Young, we have the people, methods and
tools to accompany you on this exciting
and challenging trip to improve customer
Customer attrition 17