The Perils of Proactive Churn Prevention Using Plan Recommendations: Evidence from a Field Experiment
60 Pages Posted: 13 Oct 2013 Last revised: 16 May 2015
Date Written: January 21, 2015
Facing the issue of increasing customer churn, many services have begun recommending pricing plans to their customers. One reason behind this type of retention campaign is that customers who are on a tariff suitable for them should be less likely to churn as they derive greater benefits from the service. In this paper, we examine the effectiveness of such retention campaigns using a large-scale field experiment in which some customers were offered plan recommendations and some were not. We find that being proactive and encouraging customers to switch to cost-minimizing plans can, surprisingly, increase rather than decrease customer churn: Whereas only 6% of customers in the control condition churned during the three months following the intervention, 10% did so in the treatment group. We propose two explanations for how the campaign increased churn, namely, by lowering customers’ inertia to switch plans and by enhancing the sensitivity to usage among potential churners. Our data provide support for both explanations. By leveraging the richness of our field experiment, we assess the impact of targeted encouragement campaigns on customer behavior and firm revenues and derive recommendations for service firms.
Keywords: Churn, Retention, Field Experiment, Pricing, Nonlinear pricing, Tariff/Plan choice, Targeting
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