Some Customers Would Rather Leave Without Saying Goodbye

60 Pages Posted: 17 May 2015 Last revised: 28 Sep 2016

See all articles by Eva Ascarza

Eva Ascarza

Harvard Business School

Oded Netzer

Columbia Business School - Marketing

Bruce Hardie

London Business School

Date Written: September 19, 2016

Abstract

We investigate the increasingly common business setting in which companies face the possibility of both observed and unobserved customer attrition (i.e., “overt” and “silent” churn) in the same pool of customers. This is the case of many online-based services where customers have the choice to stop interacting with the firm either by formally terminating the relationship (e.g., cancelling their account) or by simply ignoring all communications coming from the firm. The standard contractual versus noncontractual categorization of customer-firm relationships does not apply in such hybrid settings, which means the standard models for analyzing customer attrition do not apply. We propose a hidden Markov model (HMM)-based framework to capture silent and overt churn. We apply our modeling framework to two different contexts — a daily deals website and a performing arts organization. We find that, counter to previous studies that have not separated the two types of churn, overt churners in these hybrid settings tend to interact more, rather than less, with the firm prior to churning. That is, in settings where both types of churn are present, a high level of activity — as when customers actively opening the emails received from the firm — is not necessarily a good indicator of future engagement, but rather is associated with higher risk of overt churn. We also identify a large number of “silent churners” in both empirical applications — customers who disengage with the company very early on, rarely exhibit any type of activity, and almost never churn overtly. Furthermore, we show how the two types of churners respond very differently to the firm's communications, implying that a common retention strategy for proactive churn management is not appropriate in these hybrid settings.

Keywords: Churn, retention, attrition, customer relationship management, customer base analysis, hidden Markov models, latent variable models

Suggested Citation

Ascarza, Eva and Netzer, Oded and Hardie, Bruce, Some Customers Would Rather Leave Without Saying Goodbye (September 19, 2016). Columbia Business School Research Paper No. 15-55. Available at SSRN: https://ssrn.com/abstract=2606807 or http://dx.doi.org/10.2139/ssrn.2606807

Eva Ascarza (Contact Author)

Harvard Business School ( email )

Soldiers Field
Boston, MA 02163
United States

HOME PAGE: http://evaascarza.com

Oded Netzer

Columbia Business School - Marketing ( email )

New York, NY 10027
United States

Bruce Hardie

London Business School ( email )

Regent's Park
London, NW1 4SA
United Kingdom

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