The causes of customer churn for digital brands & how research can help

The digital brands that saw huge growth in the early 2020s are now facing a huge challenge keeping hold of customers and building sustainable businesses.

What are the causes and how can customer research help? In this post we take a look at what digital brands must consider to understand the multifaceted drivers of customer churn. We’ll also outline the research methods that can be used to shape better strategies for building a loyal and valuable customer base…

Stop the churn….

The post-pandemic good times that came from an enforced shift to digitalisation appear to be over as quickly as they started. Today, delivering value from existing customers is the name of the game for digital-first businesses who aim to thrive.

Working in the strategic research space, the briefs we receive from clients often reflect the common challenges that brands face, with waves of similar project objectives landing at the same time. This is not a new experience, but the shift from boom to survival mode that we are experiencing in the 2020s is faster than we have seen in the past 20 years.

Just two years ago, in 2021, we were inundated with briefs focused on propelling growth and exploring new opportunities: audience insight and proposition development, market segmentation and price optimisation, UX design, and communications development. But as we enter early 2023, the focus has shifted to survival and sustainability, with an emphasis on briefs that enhance customer experience, support product and brand stretch and create long-term value. Most of all, the briefs we see now are about addressing churn — retaining customers and boosting loyalty.

And it is digital businesses that appear hardest hit by churn. The pandemic saw consumers of all profiles and persuasions going digital-first, whether they wanted to or not. This, coupled with fewer outlets for consumer spending, led to a short-lived digital boom: brands that could deliver everything to consumers’ doorsteps in minutes, entertain you whilst you were stuck indoors, or help boost your culinary skills when restaurants were off the menu. Already, many of these brands are failing vs. the lofty highs of the recent past, with customer numbers falling faster than they can be replenished.

For surviving brands, quickly shoring up and strengthening their customer base is critical. To do this, they need to pivot their propositions and improve brand experience. But before doing so, these brands need to understand where churn stems from and develop fresh understanding of the evolving needs of their customers.

The causes of customer churn & the questions to answer if you’re going to lower it

Of course, there is no “silver bullet” that can fix churn. No predictive churn model, optimised CRM journey, or loyalty incentive will have a fundamental, long-term impact on customer retention. The solutions (note the plural) that can fix churn and create a loyal, sustainable customer base will be more central to the brand’s proposition. You need to develop your brand in a way so that most of your customers would miss it if it didn’t exist.

Building brands that will be missed and reducing churn requires a holistic approach. No area of a digital business is likely to be immune to the need for change. The solutions will span product, brand, customer experience, user experience, marketing, and commercial strategy.

Below are the nine key areas that our research with customers has identified as the causes of churn. For each, I’ve highlighted the questions that need answering to address churn and listed the key research solutions that can fill the knowledge gaps.

1. Is your proposition’s Product-Market Fit poor?

Is there a mismatch between the outcome the customer seeks (their Jobs to be Done, pains, desired outcomes) and the brand’s value proposition? What are the gaps between current offering and a proposition that would be missed if it was no longer available?

Research to employ: Ethnographic customer diaries, Jobs to be Done Interviews, Product-Market Fit Surveys

2. Is your product failing to deliver value?

Does the in-life value delivered by the brand live up to the brand promise or, is it falling below expectations? What promised gains are not being delivered? What outcomes are not being achieved? What are the pain-points that remain? What are the opportunities to deliver more value?

Research to employ: Customer satisfaction surveys, Lapsed customer interviews, CX feedback, Social media listening

3. Do you have superior competition in your market?

Does your brand’s value, experience and pricing perform well against competitors? Has some new market entrant turned the heads of your customers? Were you just a stop-gap until pre-pandemic preferences returned?

Research to employ: Brand experience surveys, Market mapping analysis, Switching interviews and surveys

4. Is your product priced higher than the value it delivers?

Does your price align with the perceived value of your proposition and market expectations? Are you over-priced for what you offer? Where do you need to deliver more value to justify your price?

Research to employ: Pricing surveys (Choice Based Conjoint, Van Westendorp), A/B testing retention pricing

5. Is your Customer Experience leading to friction / pain-points?

Are failings in the customer journey and user experience introducing pain-points and friction that hinder customer loyalty? Can you enhance your CX to delight and deliver additional value to customers?

Research to employ: Customer satisfaction surveys, Customer journey diary studies, CX feedback, Social media listening

6. Are contextual trends hindering your potential?

From changes in post-pandemic behaviour to inflation, what trends are influencing customer loyalty? What new needs and pain points are economic, social and tech trends introducing for customers?

Research to employ: Market Immersion surveys, Insight communities, Desk research, Social Media Listening

7. Is your brand failing to connect with users’ emotions?

Does your brand ethos, tone and aesthetics resonate with customers? Are you a brand that people admire and are proud to use? Do you understand and care about the things that matter to your customers today?

Research to employ: Brand Experience surveys, Evaluative communities

8. Are behavioural biases pushing your customers away?

Are there behavioural and heuristic factors (like FOMO, Social proofing, Mere Exposure Effect, etc) failing to make your brand proposition sticky (or are attracting users more to alternatives / their old ways)? Are you mentally and physically available?

Research to employ: Behavioural and heuristic audits

9. Did you attract the wrong customers?

Did the customers you acquired have the potential to be profitable and loyal long-term? Did they only show up for the promotional offer? Do they have a history of spending in your category? Do they still need the products you provide?

Research to employ: Switching interviews and surveys

The answer to churn is asking the right questions and better customer understanding

The answers to mitigate churn will come from research into customers and their needs. And just like there is no single answer to eliminating customer churn, there is no single research solution that will provide the insight needed.

The most effective data and insights will flow from a mix of primary qualitative and quantitative research (to pinpoint and quantify gaps between your proposition, the customers and the competition) and in-depth analysis of your own analytical data (to inform churn hypotheses and test the impact of resulting initiatives).