Customer Retention and Customer Complaints: An Empirical Analysis of Two Subscription-based Products

Abstract

This research is undertaken within the field of relationship marketing. The study focuses on customer retention with emphasis on understanding customer defection in the context of customer complaint behaviour. The study examines two telecommunication products, Internet services and voice services. These represent two telecommunications products, which are at the growth and decline stages of the product life cycle, respectively. A number of explanatory variables are examined in detail with the objective of exploring the effect on customer retention, in terms of relationship strength and relationship direction. This study extends existing studies of retention by not only looking at explanatory variables that have been studied in previous research, but extending the range of explanatory variables to focus on a number of key aspects related to customer complaint behaviour. These additional variables include a) whether a customer ever complained, b) the number of complaints, c) the time since a customer last made a complaint, d) severity of the complaints, and e) length of the recovery from the complaint. The study involves an analysis of longitudinal data, using survival analysis, for 15,000 to 20,000 customers over three years. Three increasingly descriptive models are estimated for each product: a baseline model that utilises customer characteristics to explain retention; a comprehensive model including time-varying explanatory variables and finally, possible interactive effects based on the comprehensive model are evaluated. Factors such as non-complainants, length of recovery, communication encounters, household size and household income are found to contribute to an increased risk of defection. On the other hand, the number of complaints, high severity incidents, ‘recency’ of complaints, usage and, length of the relationship are found to contribute to a decreased risk of defection. Compared with previous studies, additional depth of analyses is provided through a comparison of products at different stages of the product life-cycle and the varying descriptors presented. This research has important theoretical and practical implications. The study identifies that using a combination of customer characteristics, customer transaction behaviour and customer complaint provides a much greater understanding of customer retention behaviour