REVEALING THE RETENTION CURVES
 

 

 

 

 

 

 

 

 

 

 

 

 

 

The technical side can be more challenging. Consider magazine subscriptions. Do customers start on the date when they sign up for the subscription? Do customers start when the magazine first arrives, which may be several weeks later? Or do they start when the promotional period is over and they start paying? Although all three questions are interesting aspects of the customer relation­ ship, the focus is usually on the economic aspects of the relationship. Costs and/or revenue begin when the account starts being used—that is, on the issue date of the magazine—and end when the account stops. For understanding customers, it is definitely interesting to have the original contact date and time, in addition to the first issue date (are customers who sign up on weekdays dif­ ferent from customers who sign up on weekends?), but this is not the beginning of the economic relationship. As for the end of the promotional period, this is really an initial condition or time-zero covariate on the customer relationship. When the customer signs up, the initial promotional period is known. Survival analysis can take advantage of such initial conditions for refining models.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Once tenures can be calculated, they can be plotted on a retention curve, which shows the proportion of customers that are retained for a particular period of time. This is actually a cumulative histogram, because customers who have tenures of 3 months are included in the proportions for 1 month and 2 months. Hence, a retention curve always starts at 100 percent. For now, let’s assume that all customers start at the same timeThe points on the curve show the proportion of customers who were retained for 1 year, for 2 years, and so on. Such a curve starts at 100 percent and gradually slopes downward. When a retention curve represents customers who all started at about the same time— as in this case—it is a close approximation to the survival curve. Differences in retention among different groups are clearly visible in the chart. These differences can be quantified. The simplest measure is to look at retention at particular points in time. After 10 years, for instance, 24 percent of the regular customers are still around, and only about a third of them even make it to 5 years. Premium customers do much better. Over half make it to 5 years, and 42 percent have a customer lifetime of at least 10 years.