How Do Retailers Predict Churn Rate?
When an existing customer, user, player, subscriber or any kind of return client stops doing business with a company, this is called churn. However, in the retail sector, churn is very difficult to evaluate.
USUALLY, IT IS A KEY GOAL OF RETAILERS TO CREATE AS MANY LOYAL CUSTOMERS AS POSSIBLE. If retailers would know to churn at a given moment in time, they could take proactive steps in retaining them.
This whitepaper examines how to best predict risk of sleeper churn and how to generate the biggest impact with these insights.
To be able to predict churn one needs to understand the past. At any given time, one can take a snapshot of the customer base and analyze what is known about each customer at that moment. A mathematical model to use these predictor variables to forecast the outcome variable is needed – these can be both simple as highly complex. This model will ultimately predict probability of churn.
A pragmatic approach is to look directly at the real-world impact of using the model. The churn risk predictions allow for proactive marketing tactics.
In reality, one really wants to predict how customers respond to efforts to reduce churn. Therefore, the model should actually be built to predict the likely reduction in a customer’s churn probability.
In this view, the predicted churn risk acts as a proxy for the opportunity to reduce churn, and marketing tactics are devised accordingly.
When an accurate predictive model has been built, the benefits are clear: customers most likely to churn spontaneously and those most likely to respond to targeted tactics to prevent churning, can be predicted.
This way the probability of preventing churn through marketing can be compared to the cost of any marketing initiative for each customer. Retailers can then optimize the audience for each marketing campaign aimed at reducing churn.
At Selma.ai we have developed a cloud app that guides you through this process step by step.
All your customer data is gathered in a single place, your marketing tactics are tracked, your control groups are intelligently set up and machine-learning models are automatically updated daily. Selma is our AI tool that will inspire you, without the need for a dedicated data scientist by your side.