Managing B2B customer churn, retention and profitability

• Published in: Industrial marketing management 2014-10, Vol.43 (7), p.1258-1268
• Main Authors: Tamaddoni Jahromi, Ali, Stakhovych, Stanislav, Ewing, Michael
• Format: Article
• Language: English
• Subjects: B2B customer churn; Business to business commerce; Comparative analysis; Customer retention; Customers; Data mining; Enterprises; Forecasts; Heuristic; Market strategy; Marketing; Non-contractual setting; Profit; Profitability; Public relations; Retention; Retention campaign; Studies
• ISSN: 0019-8501; 1873-2062
• DOI: 10.1016/j.indmarman.2014.06.016

It is now widely accepted that firms should direct more effort into retaining existing customers than to attracting new ones. To achieve this, customers likely to defect need to be identified so that they can be approached with tailored incentives or other bespoke retention offers. Such strategies call for predictive models capable of identifying customers with higher probabilities of defecting in the relatively near future. A review of the extant literature on customer churn models reveals that although several predictive models have been developed to model churn in B2C contexts, the B2B context in general, and non-contractual settings in particular, have received less attention in this regard. Therefore, to address these gaps, this study proposes a data-mining approach to model non-contractual customer churn in B2B contexts. Several modeling techniques are compared in terms of their ability to predict true churners. The best performing data-mining technique (boosting) is then applied to develop a profit maximizing retention campaign. Results confirm that the model driven approach to churn prediction and developing retention strategies outperforms commonly used managerial heuristics. •Introduces data mining models to predict customer churn in B2B contexts.•Finds that the boosting technique performs best in terms of its ability to predict true churners.•Proposes a profitability metric to maximize the profit of a retention campaign.•Tests the performance of the proposed model on transactional data from a major Australian FMCG retailer.•Results confirm that the model driven approach to churn management outperforms commonly used managerial heuristics.