Table 1From “Retention should be ranked by profit, not churn alone”
The profit-first retention ranking card
Rank retention interventions by incremental economics, not by churn risk alone.
Table 1The profit-first retention ranking card
| Synthetic customer | Churn risk | Expected incremental cash flow | Intervention cost | Profit lift after cost | Decision |
|---|---|---|---|---|---|
| A | High | 42 | 4 | 38 | Target |
| B | High | 9 | 5 | 4 | Hold for review |
| C | Medium | 30 | 3 | 27 | Target |
| D | Low | 16 | 12 | 4 | Hold for review |
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Source: Author's synthetic decision framework grounded in Lemmens and Gupta (2020), Lariviere and Van den Poel (2005), and Gupta et al. (2004). Values are illustrative and do not describe observed customers or a live campaign.
Source and evidence
Each line names a claim related to this exhibit, its source, and how it was checked.
- A LG20-C1 The method, in the authors' words: "defining a profit-based loss function to predict, for each customer, the financial impact of a retention intervention"Lemmens & Gupta. (2020)
- A LG20-C2 The ranking rule is incremental and net of cost: "customers are ranked based on the incremental impact of the intervention on churn and postcampaign cash flows, after accounting for the cost of the intervention", rather than by churn risk or response alone.Lemmens & Gupta. (2020)
- A LG20-C3 "Two field experiments affirm that this approach leads to significantly more profitable campaigns than competing models", and the method also "provides a method to optimize the" size of the campaign. Two experiments, not a survey of practiceLemmens & Gupta. (2020)
- A LVP05-C1 Three outcomes, one sample: "three important measures of customer outcome next buy partial defection and customers profitability evolution", over "a real life sample of 100 000 customers taken from the data warehouse of a large european financial services company"Lariviere & Van den Poel. (2005)
- A LVP05-C3 The variables do not transfer between outcomes: "the same set of variables have a different impact on buying versus defection versus profitability behavior", with past customer behaviour "more important to generate repeat purchasing and favorable profitability evolutions"Lariviere & Van den Poel. (2005)
- A GLS04-C2 The sensitivity is theirs and it is asymmetric: "a 1% improvement in retention, margin, or acqui"sition cost "improves firm value by 5%, 1%, and .1%, respectively"Gupta, Lehmann & Stuart. (2004)
- A GLS04-C3 Five firms, public data: the method is demonstrated "by using publicly available data for five firms", and retention outweighs the discount rate, since "a 1% improvement in retention has almost five times greater impact on firm value than a 1% change in discount rate or cost of capital"Gupta, Lehmann & Stuart. (2004)
Grades: A, verified against the printed page of the primary source · B, primary source, text layer only · C, authoritative secondary · D, reported.
From the essay
Growth that compounds
Retention should be ranked by profit, not churn alone
High churn risk is not customer value: rank retention by incremental effect, intervention cost, postcampaign cash flow, and campaign size.
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