CUSTOMER RETENTION
 

 

 

 

 

 

 

 

 

 

 

 

 

 

Customer Retention Customer retention is a concept familiar to most businesses that are concerned about their customers, so it is a good place to start. Retention is actually a close approximation to survival, especially when considering a group of customers who all start at about the same time. Retention provides a familiar framework to introduce some key concepts of survival analysis such as customer half-life and average truncated customer tenure. Calculating Retention How long do customers stay around? This seemingly simple question becomes more complicated when applied to the real world. Understanding customer retention requires two pieces of information: When each customer started When each customer stopped The difference between these two values is the customer tenure, a good measurement of customer retention. Any reasonable database that purports to be about customers should have this data readily accessible.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Of course, marketing databases are rarely simple. There are two challenges with these concepts. The first challenge is deciding on what is a start and stop, a decision that often depends on the type of business and available data. The second challenge is technical: finding these start and stop dates in available data may be less obvious than it first appears. For subscription and account-based businesses, start and stop dates are well understood. Customers start magazine subscriptions at a particular point in time and end them when they no longer want to pay for the magazine. Customers sign up for telephone service, a banking account, ISP service, cable service, an insurance policy, or electricity service on a particular date and cancel on another date. In all of these cases, the beginning and end of the relationship is well defined. Other businesses do not have such a continuous relationship. This is particu­ larly true of transactional businesses, such as retailing, Web portals, and catalogers, where each customer ’s purchases (or visits) are spread out over time—May be one-time only. The beginning of the relationship is clear—usually the first purchase or visit to a Web site. The end is more difficult but is sometimes created through business rules. For instance, a customer who has not made a purchase in the previous months may be considered lapsed. Customer retention analysis can produce useful results based on these definitions. A similar area of application is determining the point in time after which a customer is no longer likely to return