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Using Social Network Effects to Improve Customer Retention

Calculate your ROI with this Excel-based Return on Customer Retention Estimator
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It is logical to think that a person’s social network influences their buying behaviour.  If my friend likes Company X, they will probably tell me about it and I, too, may like them enough to become a customer.  Indeed, leveraging this idea has long been used in the endless variety of “friend-get-friend” programs used in customer acquisition campaigns.

However, if something works forwards (getting customers) it may also work backwards (losing customers).  Do people stop being your customer if their fiends stop?  Yes, as it turns out, they do.

This recent paper by the Marketing Science Institute (Social Effects on Customer Retention) shows that defecting customers can indeed take others in their social network with them.

To summarize their findings:

a [social] network neighbor increases a customer’s hazard of defecting…exposure to a defecting neighbor is associated with an increase in the focal customer’s hazard of defecting as much as … 80%.

What’s more the more similar two neighbours are, the more pronounced is the effect.  However, over time the impact of the friend leaving reduces substantially.

…the influence of a neighbor’s defection decreases markedly with the passage of time, and a customer’s loyalty “immunizes” him or her against the effects of a defecting neighbor.

This should come as no surprise to marketers.  After all there is no such thing as a free lunch and if we want to leverage a social media to get customers we should expect that it can lose us customers as well.

So what to do?

Keep your existing customers

For many years I have espoused a focus on customer retention.  I have built many customer retention business cases to show the bottom line cost of not managing this company asset (customers) properly and the incremental value of investing properly in it.

It seems now that all of those business cases have actually underestimated the real cost of a lost customer.  It’s not just losing this customer that we have to consider but also the loss of their social network peers.

If we needed more evidence of the importance of customer retention, not that I did,  we have it here.

Proactively contact a lost customer’s social peers

If a customer does leave then we should be actively reaching out to that customer’s social network to “nurture” them through the initial period of loss and prevent them leaving as well.

Easier said than done you might say: how can we know the others in a customer’s social network?  With the data at the finger tips of most companies that task is not as hard as it at first seems.

If you are a telco then look to the telephone numbers that your lost customer calls most often.  It’s a pretty good chance that they are in the person’s social network.  If those other numbers are your customers, then execute some type of outbound communications. The type of contact should be relative to the customer’s value to your organisation.

If you happen to be in the banking or insurance industries look to the contact and transaction data that you have.  When person A closes their transaction account, contact the other account holders with the same address.

Retailers who have customer loyalty programs can use the same address and transaction data to contact the near social networks of customers who have slowed or stopped making purchases.

Where the customer was acquired via a “friend get friend” campaign then you should look to the lost customer’s original friend and target them with a communication.

It should come as no surprise that social networks are a double-edged sword; so we should be just as robust about protecting ourselves from the negative effects as we are at leveraging the positive effects.

I've created an Excel based Retunr on Customer Retetnion Estimator so you can  perform ROI calculations on investments in Customer Retention. Download it Here

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