Separating Financial From Commercial Customer Churn: A Modeling Step Towards Resolving The Conflict Between The Sales And Credit Department
In subscription services, customers who leave the company can be divided into two groups: customers who do not renew their fixed-term contract at the end of that contract, and others who just stop paying during their contract to which they are legally bound. Those two separate processes are often modeled together in a so-called churn-prediction model, but are actually two different processes. The first type of churn can be considered commercial churn, i.e., customers making a studied choice not to renew their subscriptions. The second phenomenon is defined as financial churn, people who stop paying because they can no longer afford the service. The so-called marketing dilemma arises, as conflicting interests exist between the sales and marketing department on the one hand, and the legal and credit department on the other hand. This paper shows that the two different processes mentioned can be separated by using information from the internal database of the company and that previous bad-payment behavior is more important as a driver for financial than for commercial churn. Finally, it is shown on real-life data that one can more accurately predict financial churn than commercial churn (increasing within period as well as out-of-period prediction performance). Conversely, when trying to persuade customers to stay with the company, the impact of ‘loyalty’ actions is far greater with potential commercial churners as compared to financial churners. Evidence comes from a real-life field experiment.
|Date of creation:||Aug 2007|
|Contact details of provider:|| Postal: Hoveniersberg 4, B-9000 Gent|
Phone: ++ 32 (0) 9 264 34 61
Fax: ++ 32 (0) 9 264 35 92
Web page: http://www.ugent.be/eb
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:rug:rugwps:07/476. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Nathalie Verhaeghe)
If references are entirely missing, you can add them using this form.