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Solving Business Problems Using Mekko Graphics
Improve Customer Loyalty and Reduce Churn
Copyright 2012 © Knowledge Management Associates, LLC. All rights reserved .
Research has repeatedly shown that existing customers spend more, purchase higher margin products and services, and are more likely to refer additional customers.1
So, how do you avoid the high price of constantly replacing existing customers with new ones? Knowing the reasons why your customers are leaving you or spending less with you can help you to respond to issues and retain more customers.
Using Mekko Graphics you can examine revenue churn and determine the cause for controllable churn. Here is how…
Improve Customer Loyalty and Reduce Churn
1. Gartner, 2004: “Replace Customer Churn Predictions With Retention Analysis”
Copyright 2012 © Knowledge Management Associates, LLC. All rights reserved .
Begin with AnalysisDraw Conclusions
Identify Areas for Improvement
Improve Customer Loyalty and Reduce Churn
Copyright 2012 © Knowledge Management Associates, LLC. All rights reserved .
Customer ChurnRevenue Churn Analysis (2009-10)
-200
-100
0
100
200
$300MM
New Customers
I ncreasers
Decreasers
Lost Customers
$255MM
-$127MM20
09
-10
Reven
ue
Cha
nge
($M
M)
0
200
400
600
800
$1,000MM
2009
$853MM
2010
$981MM
Tota
lR
eve
nue
($M
M)
15%
Growth
Total Company Revenue (2009-10)2009-10 Revenue Churn
Churn = 15%
Net = $128MM
• When examining revenue growth, it is important to understand the undercurrent of revenue churn• Revenue churn is defined as the customer accounts that either decreased or were lost divided by the prior year
revenue– In this case, -$127MM ÷ $853MM = ~15% revenue churn
Copyright 2012 © Knowledge Management Associates, LLC. All rights reserved .
Customer ChurnControllable vs. Uncontrollable Behavior Drivers
0
20
40
60
80
100%
Behavior Drivers
Uncontrollable
Controllable
Perc
en
tof
To
talC
hurn
-200
-100
0
100
200
$300MM
New Customers
I ncreasers
Decreasers
Lost Customers
$255MM
-$127MM
20
09
-10
Reve
nue
Ch
ange
($M
M)
Controllable vs. Uncontrollable Churn2009-10 Revenue Churn
Net =$128MM
Total Churn = 15%
“True”ControllableChurn = 11%
• Not all churn is the same• Some revenue churn is because of factors within the company’s control (“Controllable Churn”)
– For example: poor customer service can lead to a customer defection• Some churn is due to circumstances out of the company’s control (“Uncontrollable Churn”)
– For example: an account lost when a customer went out of business in 2010
Copyright 2012 © Knowledge Management Associates, LLC. All rights reserved .
Customer Behavior DriversBehavior Driver Detail
0
20
40
60
80
100%
Controllable Reasons
Delivery
Sales
Price
Product I ssues
Customer Service
Uncontrollable Reasons
Other
Customer's BusinessConditions
Customer's OrderingHabits
Perc
en
to
fTota
lC
hurn
Q: Why did you reduce your spend with Company X?
• The reasons for revenue churn can be isolated and quantified by doing a survey among customers
– A Marimekko chart is an ideal way of showing the results of this survey because it clearly displays two individual dimensions of data
Copyright 2012 © Knowledge Management Associates, LLC. All rights reserved .
Begin with AnalysisDraw Conclusions
Identify Areas for Improvement
Improve Customer Loyalty and Reduce Churn
Copyright 2012 © Knowledge Management Associates, LLC. All rights reserved .
Using Mekko Graphics to drill down into their data, this business was able to get to the root of its customer churn. In this case, the marimekko chart in the previous slide illustrates the following: • 75% of revenue churn was due to
controllable causes• Of that, 60% was due to customer
service or product issues
Supported by this data this business would be wise to investigate ways they might improve both their product and processes to provide better customer service and a more fulfilling product experience.
What does it mean?
Using this type of analysis you can zero in on the causes of controllable churn in your business.
Copyright 2012 © Knowledge Management Associates, LLC. All rights reserved .
Begin with AnalysisDraw Conclusions
Identify Areas for Improvement
Improve Customer Loyalty and Reduce Churn
Copyright 2012 © Knowledge Management Associates, LLC. All rights reserved .
Ask the right questions:In this example a reasonable search for improvement areas could begin with questions such as:• Are employees properly trained to
address customer issues?• How could feedback from customers be
collected earlier in the cycle so that issues could be resolved and defection prevented?
• Do employees have the necessary skills to produce the best possible products and services?
• Is emphasis placed on ensuring a positive off the shelf experience with the product?
So Now What?
Asking the right questions based on your analysis can help you identify key areas for improvement to increase customer loyalty and reduce controllable churn.