By Vik Patel
In every industry, there are patterns of behavior that benefit a company's profit margins but are harmful to its users. Established companies rarely challenge these habits because they become ingrained: It’s just the way things are done.
Data, when combined with contextual insights drawn from market knowledge and an understanding of customer needs, can help companies identify pain points for customers and implement solutions that provide a competitive edge.
How We Fixed Our Retention Rate Problem
My company provides virtual and dedicated infrastructure hosting. Because we’re a technology company, our technology base — the servers and networks we use — are constantly being updated. In our industry, it’s typical for clients to keep the same resources throughout the length of their contract, even though our technology portfolio is consistently improving and the cost of providing those resources declines, sometimes dramatically.
We noticed a consistent pattern in our customer retention data. Compared to the rest of the industry, our retention rates were great. Our clients tended to stick with our products, but we noticed a significant drop-off in retention rates that wasn’t associated with complaints, support tickets, poor product fit, or any other obvious cause.
The data was telling us that a portion of our clients would move to an alternate vendor after about a year, and we were at a loss as to why, because there were none of the standard markers of customer dissatisfaction. To find out, we simply asked.
We asked clients who had recently left our platform what was wrong. The answer was informative: It wasn’t that there was anything wrong with the product, but that they could get the same resources at a lower cost elsewhere.
Because the cost of each account was fixed, if you leased a virtual private server, you’d be paying the same for that server a couple of years down the line. Both my company and our competitors aggressively price our plans to attract new customers, but that doesn’t help existing customers.
Our solution was to go against the industry grain and introduce free upgrades. As our infrastructure improves, we automatically give our users free upgrades. The specifics depend on the nature of the infrastructure, but a typical example would be to move users up a tier and retire or reprice the lowest tier.
As a result, clients never get left behind. Staying with us doesn’t cost them money compared to moving to a competitor. Our churn rates dropped, and our customers are incentivized to stick with us over the long term.
Lessons Learned
The lessons we learned helped inform how we develop and bring products to market, and how we react to the signals our clients send us.
1. Careful and thoughtful analysis of sales, retention and marketing data can reveal opportunities to improve customer satisfaction.
Data is usually not useful in isolation. It has to be considered in the context of the service you’re offering and the wider market. In this case, we had a noticeable retention problem — without an obvious cause. To connect the hints contained in the data to the market context, we simply asked these customers what the problem was. Data lead us to a fruitful human interaction. It resulted in us changing how we priced our services, which made our customers happy, which then improved our retention rates. That sort of virtuous feedback loop is a key indicator that you’re on the right track.
2. Going against established industry wisdom can provide a competitive edge.
Data-driven decision-making will often put you at odds with established wisdom in your industry. Metrics and our customers were telling us one thing, while established practice told us something else. The combination of data and customer/market insight is a powerful driver of disruption and competitive advantage.
3. Data can show you how to apply your company's values.
Values alone won't take you very far. Without data, the best intentions can't be effectively implemented. But there's another side to that coin. Data is meaningless unless it's looked at from a perspective informed by values. The combination of the two — data and company values — are essential to building great products. Manage them in the best interest of the company and the customer and do the right thing in the face of prevailing wisdom.
In short, use data to find ways to make your products better for your customers. After all, that’s the key to successful innovation.
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Vik Patel is a prolific tech entrepreneur with a passion for all things cloud and the CEO of Detroit-based Future Hosting.