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7 Ways Cognitive Science Can Reduce Churn

What do the magicians Penn and Teller have to do with growing your business?

If you have ever seen them perform a trick, you are being fooled not by their amazing abilities, but by your own brain’s cognitive biases.

In an interview with Teller (did you know that’s his full legal name?), he explained his obsession with illusions and tricking the mind. If you ever got to visit Teller’s house, he would show you a hallway that literally doesn’t exist (you would walk into a mirror) and a toy monkey that could tell you what card you were thinking of.

This article lists the 7 cognitive biases that magicians use every day to create illusions that trick our brain.

The same cognitive biases can be applied to your SaaS business in order to reduce churn and increase revenues without the customer even being fully aware of what is going on. And if you implement these simple strategies, you will have a strong edge against your competition.

1. Exploit pattern recognition

As human beings, we’re hard-wired to look for bargains. If we see 50% off (even if it is not really 50% off) we will buy it more often than if it was full price. This pattern can be used to reduce churn. However, customers trying to unsubscribe will know your full price, so you will have to give them real discounts to use this pattern.

Unfortunately, offering discounts can lead to shrinking profit margins if you don’t do them right. So consider trying to up-sell/cross-sell RIGHT AFTER they accept the low-margin bargain price to offset this effect.

Action Item: Offer a discount before letting a customer unsubscribe or churn.

2. Make the secret a lot more trouble than the trick seems worth

Most magic tricks look simple when presented, but have weeks of preparation behind them. Likewise, you can profile customers to know ahead of time which ones are more likely to churn in the short-term. Have they not used your service in the last month? What features have they used or not used? It might be time to send them a friendly reminder or offer to jump on a call to help with any issues, otherwise they might start to wonder why they are paying you.

There can be a lot of guess work when it comes to behavioral analysis alone, but when you tie this together with the strongest predictive indicator (NPS), you might as well have a crystal ball.

It may seem obvious but few companies action on this data. Nearly 50% of customers who respond as a detractor churn in less than 90 days and you know who they are when regularly engaging with NPS. How would your business look if you could cut churn in half?

Action Item: Monitor customers and accounts for signs that they might be at risk of canceling using regular NPS engagements and behavioral analysis.

3. It’s hard to think critically if you’re laughing

Humor is a great way to interrupt someone’s pattern. When someone is laughing at a joke, that’s the perfect time for the magician to do his dirty work. Nobody expects to start laughing when they originally intended to unsubscribe from a service.

Action Item: When someone is going to cancel, tell them a joke, show a funny picture, or play a funny video. Make fun of yourself, and make sure it’s really funny (or the whole technique will backfire).

Want a great example? Check out this video HubSpot shows customers/subscribers when they want to unsubscribe:

4. Keep the trickery outside the frame

You might try removing the self-service cancel option (like Josh Pigford suggests) to make it harder to leave. The food delivery service Blue Apron does this by making you send them an email in order to get a link that will let you cancel. This barrier makes it harder to keep track of what you were trying to do in the first place.

Action Item: Make canceling require more than just interacting with the website/app (email or phone). Take them out of context. This is ultimately better for the customer even if they still wish to cancel as you can engage with them to address any outstanding issues and collect useful exit or churn feedback. Do not let revenue walk out the door without at least asking why and attempting to save it.

5. To fool the mind, combine at least two tricks

You can combine many of the suggestions in this post to make them more effective. For example, combine removing the self-service cancel option with a funny joke in the email you send. Or you could cross-sell/up-sell once you detect the customer is more likely to churn. The more you can distract people from their original intent (canceling from your service) the better chance you have at keeping them as a customer. You’ll still need to address the initial reason for wanting to leave, but this gives you the opportunity to engage and do just that.

Plus, people feel bad when they say no. If you force them say no multiple times, their resistance to saying yes gets lower. From Robert Caldini’s famous book “Influence”, if a salesman offers you anything, even a free coffee, and you say no… it makes it harder to say no to any other offer he gives you down the line. It’s like your “no” muscle gets weaker the more you have to say it. On the other hand, if you take the coffee, reciprocity makes you want to concede something in return.

Action Item: Combine 2 or 3 of the action items in this blog post. DON’T overdo it though. If you string along too many offers, you risk upsetting your customers.

6. Nothing fools you better than the lie you tell yourself

If a magician tore up a card and restored it, then left it on the table and walked away… what would you do? Pick up and inspect the card yourself of course. This self discovery would fool you much more than if the magician had told you to inspect it or just put the card away instead. Let your customers feel like they discovered the discount without calling it a discount. Instead of labeling it 50% off, you can use the technique of discount by comparison.

One famous example of this was when a newspaper offered a digital subscription for $5/month, a print subscription for $10/month or digital+print for $10/month. They never intended for people to buy the print subscription alone, but it dramatically increased the conversions to the higher revenue option.

Action Item: Instead of offering 2 months of free service for continuing, you could try offering 1 month more of service for $50 or 3 months more of service for $50. Let them come to the conclusion on their own.

7. If you’re given a choice, you’ll believe you acted freely

When dealing with my 4-year old son, I often ask him if he wants to brush his teeth or go to bed. I know he never wants to go to bed, so between these two options he will always pick brush his teeth. But if I just asked if he wanted to brush his teeth he would say no.

Action Item: Instead of just making a single discount offer before a customer cancels, give them a choice of offers. This combines cognitive tricks #1, 5, and 6.

Conclusion

The human brain is riddled with shortcuts. Without them we would not be able to make it through the day. In “Thinking Fast and Slow”, this is considered the fast thinking brain. And it is thanks to the fast thinking brain that we can enjoy illusions and magic shows in the first place.

Churn is one of the most insidious killers of SaaS businesses, and leveraging the effects of cognitive science can help you keep customers longer and happier than your competitors. So try a few of these ideas and come back to the comments here and tell us which ones have been most effective for you.

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Chad Keck

As a product lead and executive for numerous successful ventures (Rackspace, HP Cloud, AppFog), Chad founded Promoter.io to help bring the actionable insights provided by Net Promoter to all businesses. He is a native Texan with a passion for helping other entrepreneurs.

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