Analysing and reducing customer defections

Firms can grow businesses by attracting new customers, losing fewer customers and doing more business with existing customers. Keeping your present customers and doing more business with them is generally a more efficient way of using resources. It requires a detailed analysis of customer defections to assess the effects of losing customers on long-term profitability and growth. This article provides some simple but powerful graphical analysis tools to use in customer defections analysis. The tools are initially described using the simple case of a service firm to show how managers can examine the probability of defections and the resulting need to attract new customers. Then the techniques are illustrated graphically using data from a UK subsidiary of an American concern which supplies equipment to large organizations. The analysis of customer defections is summarized in a sixstage process.