Question
When analyzing customer buying behavior, which of the
following metrics would be most critical in assessing customer loyalty and retention?Solution
Churn rate is a key metric that measures the percentage of customers who stop using a product or service within a given timeframe. It is essential for analyzing customer loyalty and retention, as a high churn rate indicates that customers are leaving, which may signify issues with satisfaction or engagement. By closely monitoring churn, businesses can assess the effectiveness of their retention strategies, identify at-risk customers, and take preemptive action to improve loyalty. Reducing churn is often more cost-effective than acquiring new customers, making this metric vital for sustaining long-term customer relationships. The other options are incorrect because: • Option 1 (Conversion Rate) measures initial engagement rather than long-term loyalty. • Option 2 (Net Promoter Score) gauges customer satisfaction but does not quantify retention directly. • Option 3 (Customer Acquisition Cost) reflects the expense of acquiring customers, not their retention. • Option 5 (Average Order Value) measures sales per transaction, which does not directly relate to customer loyalty.
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