Information Transparency and Customer Churn: Evidence from the Insurance Industry
Customer churn has been a nightmare for firms especially in the service industries, particularly where market information is highly transparent. However, whether and how information transparency affects customer churn remains under-researched. The Information Systems (IS) and marketing literatures suggest two contradictory rationales: either high price elasticity, which induces churn or high product informedness, which reduces churn, but without a clear answer to our question. To resolve this tension, we conducted a series of econometrics analyses by utilizing a unique large-scale dataset from a major European insurance company. Surprisingly, we found that customers acquired from a channel (a third-party price comparison website) with high information transparency are less likely to churn by 6%, implying that information transparency facilitates customer retention. Our findings contribute to the IS and marketing literatures by unraveling the relationship between information transparency and customer churn, providing insightful implications to managers to reduce customer churn by allocating resources to more transparent channels.