In 2009 when my colleagues at the National Bureau of Economic Research and I began planning a conference for a project we’re running on the global financial crisis, we were concerned that the material would no longer be timely when the symposium actually occurred. We needn’t have worried.
I’ve just returned from Washington, DC, where our symposium was held, and again financial crises were the topic of the day. Three years after cracks in the subprime mortgage market erupted into the most severe and synchronized global financial crisis and recession since the Great Depression, the world economy is once more in dangerous territory. What began as a singular sovereign debt problem in Greece has spread to the rest of Europe, and now threatens to become a second act to the first financial crisis. How did we get here? And how can we keep it from happening again?
Businesses often spend a lot of money trying to retain customers. Many direct their retention activities toward all of their customers and hope that enough respond for the effort to pay off. But some customers leave anyway. A more effective approach recognizes that customers are different and their likelihood of departing—a phenomenon known as churn in the business world—varies among individuals and over time.
Some customers churn for reasons a business can control. These customers may be unhappy with the price or product, or they may prefer a competitor. Others churn because they move away or die or go bankrupt—matters a business can’t control. An efficient strategy targets those customers likely to churn for controllable reasons and does not overspend on customers likely to leave for uncontrollable reasons. And when evaluating the success or failure of retention marketing activities, managers should take the incidence of uncontrollable churn into account.