Focusing on tactical strategies directed toward customers who have defected from a firm in order to win them back.

1. - 1 - Laurence J. Pino
Winning Back Customers
Laurence J. Pino, Esq.

2. - 2 - Laurence J. Pino, Esq.
The Authors
V. Kumar
Regents Professor, Richard and Susan Lenny Distinguished Chair
Professor of Marketing, and executive director of the Center for
Excellence in Brand & Customer Management
J. Mack Robinson College of Business
Georgia State University
PhD, Marketing, University of Texas
Xi (Alan) Zhang
Assistant Professor of Marketing & Int’l Business
University of Toledo
College of Business and Innovation
PhD
J. Mack Robinson College of Business
Yashoda Bhagwat
Assistant Professor
Texas Christian University
Neeley School of Business
PhD
Georgia State University

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Purpose of the Study
Improving customer satisfaction and customer retention in order to reduce
customer churn are important goals for any business manager. However,
customer satisfaction is a weak predictor of customer defection (Capraro,
Broniarczyk, and Srivastava 2003). In fact, in the telecommunications industry,
critical incidents that signify customer deterioration in the relationship with
the firm do not significantly predict customer churn (Gustafsson, Johnson, and
Roos, 2005). Nonetheless, while retention continues to of major managerial
importance (Knox and Van Oest, 2014), reacquiring lost customers has become a
top analytic priority in business-to-business marketing (Griffin and Lowenstein,
2001; Institute for the Study of Business Markets).

4. - 4 - Laurence J. Pino, Esq.
Purpose of the Study
of reacquisition, as well as the second lifetime value in all
three components which include likelihood of
reacquisition, second-lifetime duration, and second-
lifetime profitability.
In short, the goal of the authors’ Study was to model
the probability of reacquisition of defected customers,
second lifetime duration, and profitability per month.
According to the authors, this Study is the first “to empirically test the
relationship between customers’ first lifetime service experiences and
behaviors, reason for defection, and the type of win-back offer and their
likelihood of reacquisition, second lifetime duration, and second lifetime
profitability,” by using individual-level transaction as well as survey data
regarding the reason for defection from a major telecommunications service
provider in the United States. In short, the authors examine the first lifetime
experience specifically to determine the reason for defection and the likelihood

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Audience for Research
The research is directed to two primary constituencies:
• The academic community in that this Study contributes to the literature
for marketing researchers; and
• Managers by providing empirical data helpful to make better decisions
with respect to: which customers to target based upon the data in light
of the probability of reacquisition as well as the duration and
profitability of the second lifetime, and which offers to make to those
customer segments.

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Hypotheses
Explanation
H1
Referral behavior is positively related
to the likelihood of reacquisition.
Supported. Referral behavior is positively related to
the likelihood of reacquisition.
H2
Complaining behavior is negatively
related to the likelihood of
reacquisition.
Supported. The number of complaints in the first
lifetime is negatively related to the probability of
reacquisition.
H3
A service recovery before defection is
negatively related to the likelihood of
reacquisition.
Unsupported. Instead, a service recovery in the first
lifetime is positively related to the probability of
reacquisition. By way of explanation, it can be
surmised that defected customers still appreciated
the prior firm’s recovery efforts.
H4
Customers who left for (a) solely price-
related reasons are the most likely to
accept the win-back offer, (b) solely
service-related reasons are less likely
to accept the win-back offer, and (c)
price- and service-related reasons are
the least likely to accept the win-back
offer.
Supported. (a) Customers who left for price-related
reasons are the most likely to switch back to the
firm; (b) customers who left for service-related
reasons less so; and (c) customers who left for both
price- and service-related reasons were the least
likely to accept the firm’s win-back offer.

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Hypotheses
Explanation
H5
The likelihood of reacquisition is (a)
highest for customers presented with
a win-back offer that bundles a
price discount with service upgrade,
(b) lower for customers presented
with a win-back offer that offers only a
price discount, and (c) lowest for
customers presented with a win-back
offer that offers only a service
upgrade.
Supported. Customers who were targeted with a
bundled price and service win-back offer were the
most likely to return compared with customers who
were offered only a price discount or only a service
upgrade.
H6
Customers who left for (a) price- and
service-related reasons are likely to
have the shortest duration in their
second lifetime, (b) solely price-related
reasons are likely to have relatively
longer duration in their second
lifetime, and (c) solely service-related
reasons are likely to have the
longest duration in their second
lifetime.
Partially Supported. Customers who defected for
price-related reasons had the longest second
lifetime durations compared with the customers
who defected for service-related reasons or both
price- and service-related issues.

8. - 8 - Laurence J. Pino, Esq.
Hypotheses
Explanation
H7
Customers who left for (a) price- and
service-related reasons are likely to
have the lowest profitability per
month. in their second lifetime, (b)
solely price-related reasons are likely
to have relatively higher profitability
per month in their second lifetime,
and (c) solely service-related reasons
are likely to have the highest
profitability per month in their second
lifetime.
Supported. Customers who defected for service-
related reasons have the highest second lifetime
profitability compared with customers who
defected for price-related reasons and customers
who defected for both price- and service-related
reasons.
H8
The second-lifetime duration is (a)
longest for customers who were
reacquired with a win-back offer
bundling a price discount with service
upgrade, (b) shorter for customers
who were reacquired with a win-back
offer offering only a service upgrade,
and (c) shortest for customers who
were reacquired with a win-back offer
offering only a price discount.
Partially Supported. A win-back offer including only
a service upgrade was more positively associated
with second lifetime duration. The customers who
were offered a service upgrade and price discount
were the least positively associated with second
lifetime duration, possibly suggesting that the
customers who were reacquired with such an
attractive win-back offer were actually the most
price sensitive.

9. - 9 - Laurence J. Pino, Esq.
Hypotheses
Explanation
H9
The second-lifetime profitability is (a)
highest for customers who were
reacquired with a win-back offer
bundling a price discount with service
upgrade, (b) lower for customers who
were reacquired with a win-back offer
offering only a service upgrade, and (c)
lowest for customers who were
reacquired with a win-back offer
offering only a price discount.
Partially Supported. Customers who were offered a
bundled win-back offer had the lowest second
lifetime profitability compared with customers who
were offered only a service upgrade, or only a price
discount. In short, a too attractive win-back offer
may have a negative effect against other win-back
offers by encouraging customers to seek better
deals.

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Data and Methodology
The data are compiled from a U.S. based telecommunications
products and services firm covering a seven-and-one-half-year period of
time from the fourth quarter of 2006 through the first quarter of 2014.
The data tracked the activities of each of the firm’s customers for seven
years, which included three years before defection and four years after
reacquisition and entailed data on the reason the customers were lost as
well as the length of time those customers were lost. With respect to first
lifetime customers, the data can be grouped by the first lifetime service

11. - 11 - Laurence J. Pino, Esq.
Data and Methodology
experiences and behavior, the reason for defection, the nature of the win-
back offer, the first lifetime marketing contacts, and the demographics.
The data also include purchasing and referral activities, as well as
customer-initiated complaints with the firm and any service recovery
efforts the company has made.

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Data and Methodology
The data regarding the defection and the win-back offer include the
time of defection, the reason for defection, and the specific win-back offer
made to the customer.
• The marketing data from the first lifetime include the frequency of
phone calls, direct mail, and emails sent.
• The demographic information includes, for each customer: income,
gender, age, household size, and education.

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Data and Methodology
In short, three samples were obtained from the overall database: the
preacquisition sample consisted of 53,729 customers who defected and
were targeted with a win-back offer, of which 14,384 (27%) were
reacquired, constituting the reacquired sample despite the presence of
strong competition from three major suppliers and one regional supplier.
The reacquired customers had a longer average first-time tenure than
the entire preacquisition sample (1,564 days vs. 1,431 days) and a higher
average revenue per month – $8,170 vs. $7,260.

14. - 14 - Laurence J. Pino, Esq.
Data and Methodology
Methodology
The firm conducted a large-scale randomized
field experiment selecting lost customers to
whom to send win-back offers. The win-back
offers consisted of three primary categories:
a price discount, a service upgrade or a
bundle of a price discount and service
upgrade. Those win-back offers were initiated
in a two- to six-month window since the
customers’ defection premised on the fact
that if customers defect for competitors, it is
typically during a trial period in which they
have the opportunity to cancel their trial
membership elsewhere. Thereafter,
reacquisition becomes more problematic.

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Data and Methodology
The authors used a Probit model to capture the
reacquisition process, a right-censored Tobit
model for the second lifetime duration, and a
regression for the profitability per month.
Six sets of variables were analyzed.
• The first set was the customer’s lifetime
service experience and behavior.
 The variable REF reflected the
number of referrals captured by the
customer.
 COMP indicated the number of times the customer contacted
the firm to report dissatisfaction.
 The variable RECOV captured whether the firm corrected a
reported service problem.

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Data and Methodology
• The second set of variables
reflected the customers reason
for defection: price related,
service related, or both.
• The third set of variables
reflected the win-back offers:
price, service, or both. This
variable was also analyzed
based on expert knowledge.
• The fourth set of variables consisted of the interactions between the
reasons for the defection and the win-back offers.
• The fifth set of variables related to the marketing contacts with the first
lifetime customers through phone, email, or direct mail.

17. - 17 - Laurence J. Pino, Esq.
Data and Methodology
• The sixth set of variables included the demographics and customer control
characteristics and first lifetime control variables: the tenure in days of the
customer with the first lifetime firm and the number of days the customer
had been with the firm as well as the revenue in dollars the customer
contributed to the firm, along with the level of the service plan that
customer had subscribed to.

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Results
The results were substantial and particularly effective for managers. Note the
following:
A customer’s trust and commitment in their first lifetime influence the
likelihood of returning to the firm, reflective of behaviors that indicate
positive first lifetime experiences.
Customers who defected with price-related reasons and were targeted
with the price discount were the most likely to switch back to the firm
compared to customers who defected for service-related reasons and
were offered a service upgrade.
Customers who left for service-related reasons and were targeted with
a service upgrade, had longer second lifetime duration and higher
profitability per month than the customers who left for price-related
reasons and were targeted with a price discount.

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Results
Cross-buying in the first lifetime was quadratically related to the
likelihood of reacquisition.
The length of a customer’s first tenure has positive effects on their
reacquisition probability, second lifetime duration and profitability
per month.
The passage of time has an inverted U-shaped relationship
meaning that the likelihood of regaining customers is less if the
firm contacts the customer too soon or too late after defection
with a win-back offer.
The time since defection is negatively correlated with second-
lifetime duration and profitability per month; in other words, the
longer the lapsed duration, the smaller the duration and
profitability per month of the second relationship.

20. - 20 - Laurence J. Pino, Esq.
Results
Referral behavior indicates not only customer satisfaction with a
firm, but also their confidence in the firm’s service quality,
suggesting an engaged relationship.
A service recovery before defection is not necessarily bad and does
not necessarily exacerbate the customer’s frustration; a service
recovery is positively correlated to the likelihood of reacquisition. In
that regard, the results are in contrast to Van Doorn and Verhoef (2008),
who found that service recoveries do not have a significant impact
on satisfaction.
Customers who switch for price-related reasons are more likely to be
reacquired based upon a price-related win-back offer.

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Results
Customers who switch based upon dissatisfaction with service are
likely to become particularly dissatisfied with a competitor (Ganesh,
Arnold, and Reynolds 2000), making the decision to switch back riskier and
therefore less efficient.
Customers who leave for both price and service reasons are the least
likely to return to the firm.
While a win-back offer directed to both a price discount and a service
upgrade is the most effective in reacquiring customers, it is also
associated with the lowest second-lifetime duration and profitability
relative to price-based and service-based win-back offers. Price
related win-back offers are associated with higher second-life
duration and service-based win-back offers are associated with the
highest second-lifetime duration.

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Implications & Conclusions
For managers, the takeaways associated with this Study are numerous and
significant. Although, to some extent, some results are somewhat
intuitive, nonetheless, their validation stems from the empirical data that
support these conclusions as opposed to simple intuitions. Relevant and
most important to managers are the following:
1. Evaluating customers who have left, but who nonetheless
are positive with respect to the firm, is extremely
appropriate for reacquisition (“win-back”) communications.
Indeed, the threshold for investment should be far greater
than with other categories.
2. The most effective win-back offer is one which provides for
a price discount with a service upgrade.

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Implications & Conclusions
3. For customers who have left for price reasons, customers become
profitable in their second lifetimes and, for customers who have left for
service-related reasons, the customer is likely to have the longest
duration in their second lifetime, and the company has a second chance
to make an appropriate impression on the customer.
4. Even though service-related reasons for defection are less likely to
accept a win-back offer, when they do, they end up with the longest
duration as well as the highest profitability per month in their second
lifetime.
5. Customers who leave for both price and service reasons are the least
likely to return to the firm.

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Implications & Conclusions
6. To the extent that most managers would treat lost customers – “defected
customers” – as lost and, should they rejoin, they would be treated as a
new customer, valuable information is substantially lost in the process
which prevents the manager from treating the defected group as a separate
database segment capable of being independently prospected, with
alternative and superior results to broad-based marketing acquisition
efforts.
7. The Study indicates that a customer’s trust and commitment in the first
lifetime influence the likelihood of a defected customer returning to the
firm.

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Implications & Conclusions
8. The authors note that while maximizing duration and profitability is the
goal, it is sometimes more advantageous to focus initially on reacquisition.
In a saturated market, for example, where competition is intense, a firm
should strive to grow in subscriber base and gain market share. In light of
that, reacquisition should be of the utmost importance. The objective, at
that point, should be in developing new products and services which will
maximize profitability thereafter.

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Implications & Conclusions
9. From a straight tactical point of view, the data are incontrovertible as follows:
• If the tactical objective is to reacquire as many customers as possible, a
bundled price and service win-back offer is the most successful,
regardless of the reason for defection.
• For the customers who defected for price-related reasons, a price win-
back offer yields the highest expected second-lifetime profitability.
• For the customers who defected for service-related and price-related
reasons, the bundled price and service offer yields the highest expected
second-lifetime profitability.