The Distribution Blog

The Futuristic Secret Weapon for Churn Prediction is Already Here

May 9, 2023

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What if the train you’ve been waiting for has already pulled into the station?

The customer management and profitability breakthrough you need for churn prediction may be hiding in plain sight.  

Artificial intelligence (AI) can help you figure out which customers you’re likely to lose — and what you need to do to hold on to them.  

Some distribution leaders who are very savvy in most other areas still haven’t fully grasped some of the biggest ways AI could revolutionize their businesses to accelerate growth. And this myopia could be costing them.

We once worked with a distributor who wildly misinterpreted the health of one of their top customers.

The customer was renovating their office and buying a ton of expensive supplies from the distributor. Their spending was up overall as a result. Good news, right? Well, not so fast.

Proton flagged this account as high risk. At first, the distributor thought Proton wasn’t effective, pointing to the high spending from the account. But when they dug deeper, a clearer picture emerged.  

The customer wasn’t purchasing the consumables (unrelated to the renovation) they typically did. Once Proton flagged the account and the sales rep reached out to investigate, they found the customer was shopping around for a better price.  

Ultimately, the sales rep switched the customer over to house-brand alternatives so the customer could get a better deal on the products and allow the distributor to protect its revenue.

Had Proton not flagged the account as at-risk, the customer would have churned by switching to a competitor, and the distributor would have noticed when it was too late.

Why Stopping Churn Is More Important Than You Think

Your churn rate is the number of customers who stop doing business with you during a given period of time — monthly, quarterly, or yearly. It’s the flip side of your retention rate, and it’s a lagging indicator of customer satisfaction.  

In their book Leading on the Edge of Chaos, Emmet Murphy and Mark Murphy share that a 2% increase in customer retention has the same effect as decreasing costs by 10%.

If you’re not comfortable decreasing your prices by 10%, you should pay close attention to your customer churn rate.  

Reducing and eliminating churn is vital to protecting your profits and market share so that you can grow and build rather than running on a treadmill as you try to replace customers you’re losing.

Reducing churn and increasing customer retention by just 5% can result in a profit increase of 25% or more. Acquiring new customers can be anywhere from 5 to 25% more expensive than holding on to the ones you already have on a per-customer basis.

Increasing profits and reducing expenses with good churn management is just good business. Customer churn is preventable, but it’s not easy unless you have AI to help.  

How AI Helps You Defeat Churn

One of the most valuable capabilities of AI is its ability to detect certain kinds of events even before they occur — so you can take action to prevent problems ahead of time or position yourself to capitalize on new opportunities just around the corner.

AI does this by detecting patterns in the data that would otherwise get missed.

This is one of the reasons that using an AI-enabled CRM solution like Proton  really pays off. When your data is siloed and scattered among different applications, it’s almost unusable. An AI-powered CRM brings all of a distributor’s data together, making it possible for AI to analyze it and find insights that otherwise would be hidden.  

Getting all your data into a centralized cloud-based database not only means everyone on your team is on the same page, working from a single source of truth — it also means that AI can analyze your data at a profound level to surface valuable new insights about things like customer behavior.

A sophisticated AI-enabled CRM can not only predict customer sales — it can drill down and alert you to the subtle changes that may mean you’re about to lose one particular customer. And it can do that much more accurately and effectively than traditional churn prevention systems.

The Science of Spotting Churn Before It Happens

One of the most common ways that distributors try to prevent churn is by flagging accounts that haven’t purchased within a particular period of time, such as 90 days. But that approach isn’t sensitive enough — by the time 90 days is up, you may have already lost the customer in question weeks ago.

Traditional approaches may also miss important behavioral changes that signal a customer slipping away. A customer may keep buying certain products from you but stop buying others. That’s a sign that you may gradually lose their business to a competitor. But if your system doesn’t raise a flag until you’ve already lost the customer, you lose your chance to keep them in the fold.

And keeping track of thousands of tiny changes in customer behavior by hand is impossible for distributors who have thousands of customers buying tens of thousands of products.  

To catch the warning signs of customer churn early on, while there’s still plenty of opportunity to stop the bleeding, you need the power of AI in your corner.

AI allows you to model churn and identify at-risk customers by monitoring data across sales channels and analyzing factors like:

  • customer behavior
  • transaction data
  • purchase type
  • purchase frequency
  • browsing behavior
  • demographics
  • ... and more.

Here are a couple of the key ways that distributors can use AI for churn prediction.

  • Behavioral Analysis. AI can detect small but meaningful changes in customer behavior to identify at-risk customers. If a customer who usually places orders on a particular day of the week or day of the month departs from that behavior or if their orders get smaller or less frequent, AI can trigger an alert. AI can also notice changes in whether and how customers browse online.
  • Sentiment Analysis. AI systems can keep you aware of how customers feel about your brand by monitoring social media posts, emails, customer surveys, CSR notes, online forums, and customer service interactions — and then use natural language processing to analyze tone, subtext, and other language cues.  

Turning the Churn Around

Identifying customers at risk for churn helps you get ahead of the problem.

When customers express dissatisfaction or their behavior patterns change, finding that out early is the key to turning the situation around. A superior churn prevention tool will not only identify the issue — it will bring it to the attention of the right team members in your organization, like marketing, sales, or customer service staff, so they can take the right actions to prevent loss.

Here are a few of the strategies you can use to address the situation once AI brings it to your attention:

  • Proactive Outreach: Sometimes unhappy customers need to know that their concerns have been heard and addressed. And the earlier you can do that, the better the chance of saving the relationship. Once your support team knows who to contact, they can start a dialogue and repair the damage.
  • Recommendations: With AI-powered recommendations, sales reps can make more relevant and personalized product suggestions to customers. This AI feature reviews past purchases and browsing behavior and compares presumed preferences to similar accounts to surface recommendations. Great product recommendations prevent category slippage by giving customers what they need and an option to reorder from you. AI recommendations boost customer satisfaction and reduce churn risk by helping customers find items they may have missed, promote complementary products, and provide suitable substitutions.  
  • Offers: If a customer hasn’t ordered in a while or stopped ordering a product they used to consistently purchase, it can make all the difference for a sales rep to reach out with an offer. In fact, the right offer at the right moment can not only save the day for at-risk customers, but it can also delight and build loyalty among already happy ones. By analyzing customers’ behavior, interests, and history, AI can identify promotions that hit the bullseye at the individual customer level, boosting engagement and success rates.

To make the most of these benefits, you need a CRM purpose-built for distributors. When it comes to CRMs, one size doesn’t fit all — especially for distributors who have specialized needs. You’ll be most successful with an AI-powered CRM like Proton — tailored to the nature of your business, with the necessary tools and understanding to help you boost your sales teams’ efficiency while increasing revenue and competitiveness.

Finally, it’s worth noting that even if you already have a CRM in place, Proton can help supercharge your existing setup with Recommendation APIs that you can plug in.

Ready to put the power of Proton behind your customer management? Request a demo today.

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