Customer churn rate is a critical measure in a number of sectors for a number of reasons. For example, telecommunications operators use it as an indicator of the health and loyalty of a company's subscriber base: the lower a company's churn rate, the better its outlook is. For financial services companies, meanwhile, it's a marker of how well their products are being received in comparison to their competitors'.
Keeping the churn rate low makes good business sense for other reasons too: the lower its churn rate, the more likely the business is to grow. In fact, a study published in Harvard Business Review shows it costs anywhere from five to 25 times as much to attract a new customer as it does to retain one.
But, that's not the only reason to keep churn rate low. Should a business fall victim to a data breach, its impact will be much smaller than if the company's customer churn rate is high. If it has a low churn rate, it has a much higher proportion of active customers, making it easier for the company to manage a data breach, especially from a communications perspective.
A 2017 research report from IBM and the Ponemon Institute shows companies with a higher customer churn rate will spend more to manage a data breach than companies that have a strong track record of retaining customers.
The former will, on average, spend US$10.1 million in response to a breach, while the latter will spend on average US$5.3 million.
Given that data breaches are on the rise in SA, it makes sense to avoid customer churn as much as possible. But, how can this be done?
Knowing the landscape
First off, it's important to realise that customer loyalty is increasingly hard-won, in SA and around the globe.
In part, that's down to consumers having a greater variety of products and service providers to choose from. But, it's also partially down to consumers being more demanding.
According to a study by global consultancy Wunderman, 79% of consumers want brands to demonstrate they fully understand them before committing to a purchase.
One area where this need for individual understanding can be readily demonstrated is in customer communication.
Digital disloyalty
According to a 2017 study by Verint Systems, which looked at the behaviour of consumers from 12 countries, including SA, those who prefer digital communications are much more likely to switch brands and service providers. In fact, South Africans are notably disloyal when it comes to online service providers and retailers, with a little more than half having been with their provider for more than three years. Given the volume of digital communications companies send out today, everything from promotional material to invoices, statements, policies, and collections letters, it's imperative that South African companies get their strategy right on this front.
Customer loyalty is increasingly hard-won, in SA and around the globe.
Doing so means delivering digital communications in a way that not only adds value to their customers' lives, but is safe, secure and easily accessible. In other words, people need to feel like the communication they receive is relevant to them and that it matters. That means it should be addressed to them, and have content or an offer specific to them or their position in the customer life cycle.
Additionally, it's important that customers feel safe receiving communication from the company.
When it comes to keeping digital communications safe, companies should provide multiple layers of protection, beyond network level security (firewalls) and encryption at the database level. Each individual customer document, regardless of where it is, stored in a database, travelling via the Internet, or saved on a customer's device, should also be encrypted and protected.
Striking the balance
It is important, however, not to let security completely overwhelm the way customers experience the communications a company sends them. Customer data needs to be kept secure, but security measures cannot become a stumbling block to them accessing their own data. If that happens, they'll either leave or find a way around the security structures, opening them up to attack.
Ultimately, a company wants a balance that makes customers feel safe, while ensuring their experience remains positive.
One way to do this is to maintain a human element in all digital communications. According to the Verint Survey, almost 75% of consumers don't like dealing with companies that don't provide a phone number. If a company wants to keep its customers onside, in other words, have a number they can call. Bear in mind that other customers will prefer contact via e-mail. Companies therefore shouldn't send e-mails from 'no-reply addresses' and should ensure they respond to all queries within 24-48 hours.
Managing the aftermath
While having secure customer communication is important for reducing churn, and thereby reducing the cost of a potential data breach, it can also reduce churn in the aftermath of such an attack.
According to the IBM and Ponemon Institute report: "Organisations that offer data breach victims breach identity protection in the aftermath of the breach are also more successful in reducing churn."
That is only likely to be true, however, if a company explains clearly to those customers what offering identity protection means and how the company plans to provide it.
Here, too, a human-centric approach is required. E-mails and text messages might work for some customers, but a company should also provide a number they can call to get more information on what the company is offering and how it will work.
Multi-pronged approach
Secure, digital communications are one part of what should be a multi-pronged customer-retention approach, which includes looking at the way the business positions itself, constantly evolving service offerings in line with customer demands, extreme focus on excellent customer service and rewarding loyalty.
Not only will this investment pay off by way of happy, loyal customers, it will deliver reputational and cost benefits in the event of a data breach. And that's worthwhile.
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