Social Interactions in Customer Churn Decisions: The Impact of Relationship Directionality

Abstract

The impact of social factors on individual-level decision making has been a subject of regular interest within the marketing discipline. Yet, studies analyzing social interactions and social contagion have, to a very large extent, focused on the importance of social interactions in the customer acquisition process and have relied on the use of undirected networks. Our study integrates into this literature stream by focusing on two elements that have been analyzed less frequently. Specifically, we focus on the importance of social interactions in the customer retention process within a directed social network. Using the customer base of a mobile phone provider, we rely on call detail records to investigate the churn behavior of 3,431 focal actors. We provide evidence for social interactions in customer churn decisions and show that, at any given point in time, a focal actor is significantly and substantially more likely to defect from a provider if other individuals to whom that actor is socially connected have previously defected from the provider. Yet, this effect is limited to social contacts with whom the focal actor has outgoing calling relationships and who churned relatively recently (in our sample, less than 5 weeks prior to the time point under examination). We therefore provide empirical evidence that social effects do play a role in customer retention but only when tie directionality and churn recency are taken into account.

Keywords: Customer retention, Social networks, Directed network, Undirected network, Stratified Cox Proportional Hazards model