Market attrition – definition and example
Market attrition refers to the gradual decline of customers’ loyalty to a brand due to the absence of effective promotions. Customer loyalty is usually enduring, but it does not last forever. Its longevity is significantly shorter if the company doesn’t nurture it properly
We sometimes use the terms customer attrition, customer defection, customer churn, or customer turnover, with the same meaning.
The Law Dictionary says the following regarding market attrition:
“In absence of effective promotion, customer brand-loyalty’s gradual erosion over time.”
‘Attrition‘ is the process of reducing something’s effectiveness or strength through continuous pressure or a sustained attack.
Market attrition analysis
Many companies use market attrition analysis, customer attrition rates, EBITDA, and cash flow as some of their key business metrics.
Calculating market attrition is important because retaining existing customers is far cheaper than acquiring new ones.
In other words, you get a better ROI if you focus on customer loyalty than getting new customers. ROI stands for Return on Investment. Customer loyalty refers to having customers coming back for more again and again.
Banks, Internet services providers, and insurance companies, for example, often carry out market attrition analyses. So do telephone service companies and alarm monitoring services.
Regarding customers who defect, Wikipedia says:
“Companies from these sectors often have customer service branches which attempt to win back defecting clients, because recovered long-term customers can be worth much more to a company than newly recruited clients.”
Combating market attrition
All businesses understand the value of maintaining customer loyalty versus the cost of finding new customers. The former is considerably cheaper.
So, why do so many companies still struggle with attrition problems?
According to Niall Budds in a Target Marketing article, many companies cannot define or detect customer attrition. Furthermore, a significant number of businesses cannot even predict it.
Budds gives us four practical considerations which may help us develop and implement a successful retention program.
1. Be specific
Define retention for your specific business clearly and consistently.
Most companies define attrition as a point in time. In other words, a moment when the customer switches to another brand.
However, customers hardly ever think of themselves as having a relationship with a brand. Customers look at a product and determine whether it meets their needs and delivers value.
There are some exceptions. For example, Apple devices have millions of customers who openly declare their loyalty.
In some cases, customers did not appear to switch brands but simply ran down their usage of a product or service.
For example, banking customers may have run down their balance to virtually zero because they had moved their business elsewhere.
2. Gauge and monitor
Unless you can measure and act, clearly defining attrition is pointless. Fortunately, today it is much easier to measure and analyze customer data accurately.
Put simply; if you are going to act, make sure that the data you assessed is accurate.
3. From monitoring to prevention
As you get better at gathering and analyzing data, you can move from measuring and monitoring. You can move to proactively identifying the warning signs that customers are about to defect.
Statistical techniques help you identify customers at risk of attrition. You can then target them specifically, i.e., early enough in the relationship, so that they remain loyal.
In other words, you can move from just monitoring to preventing.
The three steps above allow us to identify a problem and take action. However, if we can prioritize, our impact will be much greater.
If you analyze the sales statistics of most companies, you will find that a small proportion of customers represent most of their revenue.
Therefore, when focusing on retaining customers, target those that represent the most revenue for your company.
Prioritizing helps you not only determine who to target but also how much you are willing to spend.
Video – Market attrition in banking
This Flowtracker video looks at market attrition in banking. It is difficult for banks to accurately determine true attrition rates. Bank customers move money around between branches, banks, and products.