Executive Summary

Until recently, the attractiveness of CRM was attributed to its capacity to enhance firms’ customer retention capabilities.  More recently, a new perspective has emerged for firms that focus on CRM – namely, “customer reacquisition”.  Instead of calculating their losses and moving on, some firms chase their defected clients and become successful at winning them back. Customer reacquisition provides firms with high economic benefits.  A study by Marketing Metrics has found that an average firm has a 20-40% probability of successfully selling to lost customers, and only a 5-20% probability of making a successful sale to new prospects.  Other benefits include (i) lower acquisition costs compared to new prospect recruitment, (ii) ability to identify service improvement opportunities by tracking defected customers’ reasons for leaving, (iii) increased capability to detect at-risk customers by learning from defected customers, and (iv) the ability to limit negative word of mouth from switchers and increase positive word of mouth through those that are reacquired.  Hence, the objective of this paper is to develop an empirical model for the perceived value of a win-back offer, identify its determinants, and assess its impact on defected customers’ intentions to return back.

Across two studies, we examine the antecedents of win-back offer worth and the effects of win-back offers on customer reacquisition.  Specifically, we identify two moderators, social capital and service importance, which impact the relationship between service benefits and win-back offer worth. These moderators suggest that the antecedents of customer perceptions of win-back offer value are more complex than prior studies suggest.

In addition, we propose and test a broader model of the customer reacquisition decision, taking into account prior customer experience and aspects of the win-back offer.  We find that, as expected, customer prior experience has a significant influence on customers’ switch-back intentions—particularly customer satisfaction with the original service provider, delight with their current provider, and regret regarding the original switching decision.  The role of social capital in shaping customers’ switch back intentions is quite robust.  We find that new service provider’s social capital has a direct effect on switching intentions, and that original service provider’s social capital moderates the effect of service benefits on customer switching intentions, even when controlling for the customer’s prior experience. 

We find, as expected, that price has a significant influence on switching intentions, and that the effect of price is moderated by the customer’s switching reason.  In particular, an attractive price offer has a stronger impact on switch-back intentions when the original reason for switching was price related.  Overall, across two studies, we find evidence that the value of the win-back offer is critical, but that the perceptions of this value and the influence of this value on switching intentions is moderated by factors that have not been investigated in prior research.

Overall, these findings point to the importance of using customer management approaches to find out why and when customers leave.  Win-back efforts are often more effective and efficient than new acquisition efforts.  Therefore, service firms that make customer win-back a company-wide priority and begin utilizing CRM systems for winning-back defected customers in addition to the retaining active customers may see a significant increase in overall profitability. Tracking customer’s transactions, identifying them as lost customers, and identifying the cause of defection are key elements of a win-back effort.  Once a customer is identified as a lost customer, service providers should find out why the customer decided to switch to an alternative provider and develop a win-back offer accordingly.  Given our findings, a win-back offer may include such components as price and service benefits as well as reminders of special treatment during the customer’s past experience.  Service providers should also develop customized win-back offers that may address customers’ specific needs.  For example, a customer that received special favors and gifts in the past would pay less attention to service benefits that are available to all other customers – such customers can be enticed back by communicating a price advantage coupled with more special treatment.  Moreover, the findings of the study suggest that firms should track the importance of their services to customers.  For customers who do not think service provider selection is important, price advantage is the critical factor that drives their perceptions of WOW and intentions to switch-back. 

These findings also have implications for customer value analyses.  Recent research has suggested that customer lifetime value models should incorporate a customer win-back component, rather than treating defected customers as new customers.  The cost of winning back customers must be taken into account in these models.  Service firms make investments to communicate win-back offers and to deliver on promises of the offer once accepted.  The framework developed in this study enables service firms to assess the magnitude of such investments based on an understanding of which factors influence customers to switch back.  For instance, better service features may cost less than a price cut or building social capital at the per customer investment level.  Firms can compare required investments to the projected customer lifetime value and prioritize customers or segments receiving win-back offers.

The implications of this research may provide service firms with a framework to regain defected customers.  In addition, it is our hope that this research will also stimulate an emerging research stream towards a theory of customer reacquisition management.