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Improving Profitability on Win-Backs

Match customers on the basis of reason for defection.

In highly competitive service industries, win-back initiatives can be a useful last-resort strategy. Using individual-level transaction data and survey data from a U.S. telecommunications service provider, V. Kumar, Yashoda Bhagwat, and Xi (Alan) Zhang demonstrate how firms can encourage profitable second-lifetime behavior.

They conduct a simulation to show how matching customers on the basis of their reason for defection with the right win-back offers affects the probability of reacquisition and the duration and profitability of the second lifetime.

For the most part, the more positive the customers’ experience with the firm in their first lifetime, the more likely they are to return to the firm. Customers who terminated their relationship for service-related reasons were less likely to return (and had relatively shorter second-lifetime durations) than customers who left for price-related reasons. At the same time, they spent more each month than customers who defected for price-related reasons.

Win-back offers that provided a free service upgrade were associated with the highest second-lifetime duration, followed by offers that discount price. While a win-back offer that offers both a price discount and a service upgrade was the most effective in reacquiring customers, it was also associated with the lowest second-lifetime duration and profitability.

Download from the American Marketing Association (free until July 11, 2016)
Regaining “Lost” Customers: The Predictive Power of First-Lifetime Behavior, the Reason for Defection, and the Nature of the Win-Back Offer by V. Kumar, Yashoda Bhagwat, and Xi (Alan) Zhang, Journal of Marketing (July 2015) 

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