Microsoft is shifting from a product-focused business model to a service-based model, emphasizing customer retention and improved relationships to combat churn. The company is implementing predictive churn management by developing customer segmentation strategies based on lifetime value and customer journey insights. A new service-oriented culture and data capabilities are being established to anticipate customer needs and enhance retention efforts.

1. Customer Strategy
Case Study:
Microsoft Retains
Customers in the Cloud
Microsoft’s new service-based
business model requires
segmentation and churn
strategies for an optimal
customer experience

2. 2
The Challenge: Shifting focus from the product to the consumer
Challenge:
If you have a computer, chances are you have some experience with
Microsoft Office. The software giant has taken a new perspective on
innovation, and this time products are not the focus. Microsoft is beginning a
transformation from a product-led culture to one designed around service.
It’s widely accepted in the tech world that cloud and service-oriented
innovation is the future. Customers want to be part of a continuous
subscription model, using relevant products and services within the entire
solutions ecosystem. Success with this model requires improved customer
relationships. So alongside the launch of Office 365, Microsoft worked with
Peppers & Rogers Group to create a customer retention and renewal
program for the new cloud-based subscription model.

3. 3
The Approach: Fighting churn before it starts
Approach:
In the traditional product-focused business model, a one-time sale matters most. But in the
cloud-based model, long-term relationships are critical. Customer acquisition costs are
much higher than customer retention costs, making customer churn very expensive.
Customer retention becomes essential to strong ROI. The project included learning about
retention program best practices across industries and creating foundational models ahead
of the Office 365 launch.
Research revealed that common reasons customers churn include price, product/service
quality, customer need, and customer service. In addition, different customer groups tend to
churn at different rates, depending on attributes including the type of customer they
are, how long they have been customers, and their customer value. The team looked at how
to mitigate risks across those and other dimensions. The four churn models to “build muscle
around” include:
• Predictive churn management to prevent consumers from considering whether
to churn.
• Reactive churn management once consumers communicate their interest in
churning.
• Moments of truth identification within the customer lifecycle that may trigger a churn
or 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 essential
and also the most difficult to achieve. Much of the data exists is silos, so putting it all together
is new. Microsoft currently knows which customers call into the call center and what products
they use, but not what features within Office they use most, how long they’ve been a
customer, or what other Microsoft products and services are in their household.

4. 4
Approach Continued:
By understanding the drivers of churn in each of these four categories with different
customer groups, Microsoft can mitigate the churn risk in efficient and effective ways.
And because differentiated treatment is required to connect in a relevant way to
consumers, customer value management and segmentation become an extension of
Microsoft’s retention strategy. The team has
begun to develop models that segment
consumers based on their lifetime value
to 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 perspective
to gather meaningful insight that helps create
the correct predictive models. The team is
creating a common set of metrics for the entire
company to use, as well.
The Approach: Fighting churn before it starts

5. 5
The Insights & Outcomes: Data capabilities raise revenue
Insights & Outcomes:
Microsoft’s initiative is backed by a new
service-oriented culture led by a newly
formed product intelligence group; which is
tasked with building the capabilities to
anticipate, understand, and predict customer
needs to drive the next best action. Although
it’s too early to garner any results, the team
can point to last year’s Office 365 launch for
the small business commercial group as a
possible predictor. That launch led to fast
growth, which may be an indicator of success
for the consumer division.

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