How to anticipate and reduce the churn rate

2019/10/18

It is often easy to acquire new customers on your Video platform. But the same cannot be said by actors in this sector about keeping and retaining them.

This article unveils keys that will allow OTT platforms to anticipate and reduce the churn rate through different techniques of modern marketing.

Have a good reading!

What is churn?

The term "churn", widely used in marketing, refers to a downward trend in the number of customers. This concept enables the VOD actors to analyze subscribers loyalty and the impact of marketing actions.

How is the churn rate calculated?

One of the main concerns of a CRM or marketing manager is to calculate and limit the churn. To this end, we now have a simple formula for calculating the churn rate: it consists of dividing the number of lost subscribers by the total number of subscribers.

What is a "normal" churn rate?

Knowing that in any competitive market, there is a natural erosion of customers, we can now define a threshold above which the churn is abnormally high for a SVOD platform. To understand this notion, it is necessary to take a look at the notion of the customer's life cycle. 

In marketing, we consider that a customer goes through 3 main phases: firstly prospect, then he becomes an active customer, before being a lost customer. The churn rate is associated with the share of subscribers lost over a period of time compared to earned and active subscribers.

A "normal" churn rate should generally not exceed 5% of customers per month for a VOD platform. Beyond this rate, we consider that there is a problem in customer relationship management, particularly with regard to loyalty. 

But beyond the percentage, the most important thing is that the customer acquisition rate is always higher than the churn rate in order to avoid that its subscriber base decreases over time.

How to anticipate churn through prediction?

In a traditional marketing strategy, to anticipate and reduce churn, regular customer satisfaction surveys are carried out. The idea is to understand why customers turn their backs on a brand or company and use their responses to improve customer relationship processes to increase customer loyalty.

This can be done by adding an "investigation step" in the termination process, but also by analysing which competitor the leaving customers are going to. Indeed, the marketing mix may not be in line with a share of the customer base and it would be appropriate to modify the company's or brand's proposal in order to retain customers before it is too late.

3 types of churn are to be identified







Indeed 3 types of churn are to be identified. 

1st category: Churn due to customers

It refers to most account closures. To be precise, this category can be divided into two:

The "voluntary" churn due to customer’s will: the user has requested closure of the account because of  a disinterest in the platform for which he had contracted a subscription or because of a budgetary restriction (the user wants to make savings) or because the user switches to another platform that is of greater interest to him. 

The first cause of churn is linked to the fact that the platform is not continually supplied with fresh and relevant content. Indeed, the subscriber comes to the platform for his content and can experience a lack of interest if this platform feed him only with a content he has already watched. If so, he unsubscribes and will inevitably increase the churn rate. 

The "involuntary" churn due to customers: the user suffers an account closure due to a payment problem. For example, if his credit card has expired.

2nd category: The churn due to company’s fault

This category includes all account closures decided by the company. This may occur, for example, after the identification of fraud by the user.

3rd category: Churn due to other causes

In this category, we can find, for example, all account closures linked to legal obligations. For example, in the OTT sector, consent is very important in the Data Protection Act. 

However, the GDPR (General Data Protection Regulation) completes its definition and clarifies this concept in certain aspects, in order to allow data subjects to exercise real and effective control over the processing of their data. 

Consent is one of the legal bases provided for by the GDPR for the processing of personal data. Failure to comply with its rules may result in a churn. 



How to reduce churn by prediction?

Tip n°1: set up a reporting system to track your churn 

The first step is to define the period over which to calculate the churn. Every month and/or every quarter and/or every semester and/or every year?

The second step is to define what does a "lost" subscriber mean. This definition depends on your company's business model. To better understand, here are two scenarios:

1.For some, a "lost" subscriber is a user who has definitively closed his account.

2.For others, a "lost" subscriber is a user who has not had any activity over a given period of time. To define this period, it will be necessary to know the average frequency of purchase of users. For example, if on average users make a purchase every month, then it is considered that the user has churned if he has not done anything for 3 or 6 consecutive months.

 

The third step is to know the number of "active" users over the chosen period, to do this you have to perform the following calculation: 

 

 

For example, if we have 1000 users on January 1 and 1100 users on January 31, the average active fleet over the period is: 

 

The fourth step is to calculate the churn rate:

To illustrate, let's take again the example we had with an average fleet of 1050 users. Let's assume that over the same period we lost 50 users, so the churn rate is: 

 To go further, qualify the cause of churn for each user who closes his account and track it in your reporting.

 

Tip 2: Caring for new users

 

Usually, a large proportion of churn occurs in the first few weeks after users have subscribed

 

There are several reasons for this:

 

  • The user takes out a subscription but at the end, it doesn’t correspond to his needs.
  • The user did not understand how to use the platform. 
  • Some users lose the initial motivation they had at the time of subscription. 
  • The user wants to take advantage of the platform at a lower cost and will terminate his account before the end of the trial period.

 

It is therefore necessary to be involved in the loyalty of users from the first day of their arrival. Here are 2 actions that you can implement to overcome this type of churn.

 

1st action: implement a user integration strategy (or "Customer onboarding" strategy)

 

To build loyalty, it is imperative that the new user uses the product/service they have purchased as quickly and completely as possible.

 

To do this:

  • Define what you want your user to do with your VOD platform.  
  • Identify the milestones that the user must reach before fully using your platform. For example: How many videos should he watch per month at least? Do they have to provide information about their account? Does he have to register his credit card? Should he connect to a certain frequency on your service? etc.
  • Set up a tracking system to check the status of the user.

2nd action: set up a satisfaction questionnaire for new users. 

The idea is to be able to identify within the first few weeks whether users are fully satisfied with your platform or whether they have any questions or potential problems. 

These potential questions or problems will allow you to improve the onboarding strategy of new users and the potential problems reported will allow you to correct them quickly.

Tip 3: Identify weak signals and changes in user behaviour

Several studies have shown that users' behaviour begins to change before they make the decision to close their account.

There are two ways to identify the evolution of user behaviours:

The "weak signals" are in a way very subjective clues of churn risk.  

For example:

  • Does the user complain more often to Customer Service?
  • Does the user open emails less often (or worse, has he/she stopped advertising?)
  • In the BtoB, has the user changed the name of the account holder (which means that his successor may question your VOD platform)?
  • Does he connect less to your platform?
  • Does he use your VOD service less often?

More marked changes in behaviour. 

 

For example, does the user have:

  • Recently visited your account closure page (without taking action)?
  • Has he visited your FAQ where you explain how to close your account?
  • Did he carry out a search with the words "termination" or "closing" on the search engine of your platform?
  • Switch his offer to a lower level?

 

The identification of these signals and behavioural changes requires adequate tracking upstream but can be effective in anticipating account closures.

 Tip 4: Set up a cohort analysis

Cohort analysis is a tool that can help to understand how churn evolves according user seniority. Thus, it is possible to identify a possible peak of unsubscriptions at one or more specific points in the user's life cycle.

Here is an example of a churn analysis by cohort:

 

In this example, the 2nd month after opening the account (M+2) has a higher churn rate. In this case, we easily notice a seasonality, it is imperative to implement retention actions at the appropriate time, for example with the sending of a newsletter that will attract the attention of users; or a promotional offer precisely on sensitive months such as M+2. 

 

Tip 5: Excellent customer service is one of the most important elements in retaining users.

Many companies consider customer service to be a cost center and not a profit center. But the reality is that if customer service is not necessarily a priority, it can seriously affect user retention and therefore cost more money.

 

According to Zendesk, 82% of consumers stop doing business with a company because of poor customer service.

This figure is not surprising considering that customer service is often the only human face that the company has, especially if the company is 100% on the Internet.

 

Here is a 5-step process regain the trust of a very dissatisfied user who contacts your Customer Service (and therefore avoid closing his account).

 

  1. Listen: let the user tell his whole story, without interrupting or judging him. Often, when we are upset, we just need someone to listen. For the user, it's the same.

 

  1. Be empathetic: It is the ability to understand in depth the thoughts and emotions of your users. In the discourse towards the user, use expressions such as "I would be angry too" or "I understand why you are frustrated".

 

  1. Apologize: In a study conducted by the Carey School of Business at Arizona State University, 37% of customers who contacted their Customer Service department were satisfied when they were offered something of monetary value (for example, a refund or credit of the "1 extra month offered" type). But when the company added excuses to the commercial gesture, satisfaction doubled to 74%. So, don't skimp on this third step.

 

  1. Solve: The user's problem must be solved quickly. This can only be done if the customer service team is trained and has the means to carry out commercial actions independently. It is therefore necessary to provide this catalogue of commercial actions (and a way to track them to avoid any abuse). 

 

  1. Diagnose: Once the user is satisfied, the reason why the error occurred must be permanently corrected (and without blaming anyone). Thus, mechanically reduce user complaints and you will limit the risk of churn.

 Tip 6: Monitor what competitors are doing

One of the causes of churn is the impact of competitors' commercial actions or product launches.

How many customers have Orange, SFR and Bouygues lost with the arrival of Free?

So, to limit churn, it is essential to know the competitors well and anticipate their actions.

Here are 6 tips to spy on competitors' marketing strategy and identify what works best (and therefore to copy) and/or what can be improved at home:

  1. Become a customer of competitors: test their products, processes, subscribe to their newsletters, connect to their social networks, contact their Customer Service, visit them at fairs or exhibitions. 

  1. Use Google Alerts to receive by email all articles published on the web about your competitors.

  1. Discover in advance the evolutions your competitors are working on, if they have left their development sites open to the general public. 

  1. Install the Open SEO Stats extension free of charge on your Chrome browser, you will finally know all the SEO statistics and audience of your competitors' sites. You will also be able to see which sites link to your competitors' sites.

  1. Monitor your competitors' job offers to identify if they are in the development phase. 

  1. Look at forums on the Internet or opinion sites that talk about your competitors. The comments left can be a very informative source.

Thanks to Kinow, you can have a clear vision of the evolution of the user base, to control your churn and to control all the statistics of your video platform. Contact us !