The perils of proactive churn prevention using plan recommendations: Evidence from a field experiment

Facing the issue of increasing customer churn, many services have begun recommending pricing plans to their customers. One reason behind this type of retention campaign is that customers who are on a tariff suitable for them should be less likely to churn as they derive greater benefits from the service. In this paper, the authors examine the effectiveness of such retention campaigns using a large-scale field experiment in which some customers were offered plan recommendations and some were not. They find that being proactive and encouraging customers to switch to cost-minimizing plans can, surprisingly, increase rather than decrease customer churn: Whereas only 6% of customers in the control condition churned during the three months following the intervention, 10% did so in the treatment group. The authors propose two explanations for how the campaign increased churn, namely, by lowering customers' inertia to switch plans and by increasing the salience of past usage patterns among potential churners. The data provide support for both explanations. By leveraging the richness of our field experiment, the authors assess the impact of targeted encouragement campaigns on customer behavior and firm revenues and derive recommendations for service firms.