Customer Retention

How can we possibly be gaining that many new customers every week and still have stagnant revenue?

Compensation plans and “the grass is always greener syndrome” often cause companies to place more emphasis on acquisition rather than retention. While both are required, the sequence is critical since retention funds acquisition.

Few B-to-B companies make money on the first sale. On average it takes 18 months before a company reaches the breakeven point. This is why customer retention is critical, not only to recover the cost of acquisition, but to fuel overall growth and profitability. Acquisition and retention are often treated as separate and distinct processes but they are really two major phases of the customer lifecycle and are highly interdependent. Keeping customers is greatly determined by which customers are acquired. Finding good, retainable customers works best when their characteristics are similar to those of the most loyal existing customers.

What impact would it have on your business if you had the ability to track the activities of your customers and intervene in appropriate ways to keep them purchasing and satisfied? The headline of this page is a real quote from a CEO of a manufacturing company. Tracking new customers weekly was a key metric and he asked his team the question suspecting the correct answer: customers were “pouring out of leaks in the bottom of the bucket faster than new ones could be added to the top”. Peeling back the onion revealed almost no tools, process, or information for managing existing customers and channel partners. Without these there was no way for them to really understand what was going on, or more importantly, to fix it. Everyone – including the sales and marketing staff, attributed the losses to factors beyond their control.

Assimilation

An old marketing adage says “a customer is not a customer until he or she purchases twice.” Today many marketers would say “until he or she has purchased three or four times”. Assimilation is the intentional task of getting new customers to purchase two or three times in a relatively short time frame. But the primary purpose of assimilation is not so much the money gained through those additional purchases as it is getting new customers to enjoy multiple positive experiences rooted in the exchange of value. Some folks consider assimilation part of the acquisition process, others part of retention. It really doesn’t matter since it is the step that bridges the two. What does matter is that it is an intentional process. Download a PDF article on this subject

Reactivation

As valuable as they are, long term customer relationships can be a potential liability! It’s similar to a long term marriage. After awhile you begin to take each other for granted and the next thing you know an exciting new person shows up waving chocolates and flowers! Time to take that cruise and rekindle your relationship. When made visible, most companies are alarmed to discover how much their top customers’ purchases erode each year. And it’s not easy to discover when what is being tracked is at the account level. While you are growing a new buyer group (with chocolates and flowers) the old buyer groups may be slowly drying up. Yet from an account perspective everything would look fine. Reactivation is the process of quickly becoming aware of and appropriately intervening to “rekindle” relationships and continue to earn a return on your investments. Download a PDF article on this subject

Customer Loyalty

In some ways customer growth is long term assimilation. Loyalty gets more and more customers to experience more and more value over time. Loyalty is earned and profitable growth is realized when the additional transactions are well matched to what specific customers most value.

Setting objectives for, and measuring, customer growth requires being pretty specific about defining what a customer is. It helps to think of customers as individuals rather than accounts. Accounts don’t buy things – people buy things on behalf of accounts. Emphasizing accounts as customers can be a hindrance to customer growth because it tends to permit “laziness” when it comes to really understanding who makes the actual buying decisions, what they value, and how to reach them. It’s useful to think about business-to-business customers as networks of individuals clustered into buyer groups responsible for sets of specific applications. Larger accounts are typically intertwined networks of multi-buyer groups in multiple locations. Using this concept allows customer growth objectives, strategies and tactics to be highly focused, when:

• Selling additional existing products and services to existing individuals in existing accounts
• Selling new products and services to existing individuals in existing accounts (product penetration)
• Selling existing products and services to new buyer groups in existing locations (account penetration)
• Selling new products and services to new buyer groups in existing locations (account penetration)
• Selling existing products and services to new buyer groups in new locations (account penetration)
• Selling new products and services to new buyer groups in new locations (account penetration)

People often talk about an account being loyal. The only way to achieve total account loyalty is to gain the loyalty of all the individuals and buyer groups in all of the locations that make up an account.

Example 1: Download a PDF article on this subject
Example 1: Download a PDF article on this subject

Customer Complaint Handling: Lemonade from Lemons

Do you ever wish your customers would stop complaining? Actually, complaining customers can be music to your ears and money in the bank. That is, if you handle those complaints effectively. A study conducted by TARP demonstrated that there are positive economic impacts surrounding complaint handling. Their study looked at two sets of customers, those that had experienced a problem with a company that they did business with, and those that had not experienced a problem – and examined purchasing behavior patterns for the two groups.

The surprising results revealed that customers who had experienced a problem, reported it to the company, and had the problem handled in a satisfactory manner had higher repurchase behavior – not only higher than customers whose issues were not well-handled, but even higher than those customers who did not have a problem in the first place! The moral of the story is not to artificially create problems for customers but rather, that a company must have the systems and mechanisms in place to make it easy for customers to give feedback (complain) and have the capability to act effectively in response to the feedback. Companies that do, and that have also empowered front line employees who address those problems, will create higher repurchase behavior and greater customer retention. Download a PDF article on this subject

Leaky Bucket

If sales are up, life is good!…Well, maybe and maybe not. Too often executives can fall into the trap of focusing mainly on top line revenue. In order to make effective business decisions, an analysis of where the revenue is coming from is required. Revenue may be up because the company has gained a lot of new customers, but previously established customers are defecting – in effect, “leaking” out the bottom of our customer pool. If we are successful in replacing the defective customers, the top line growth figures may be attractive – but consider the substantial costs. It is significantly more costly to be acquiring new customers, as opposed to retaining the customers we already have. In order to avoid the effects of the “leaky bucket” and gain better insights into the health of the revenue bucket, companies need to ask questions such as:

• Are top customers staying at the top?
• How is customer purchasing behavior migrating between various spending levels over time?
• How much more growth would we realize if we could slow or stop the leaking from our revenue bucket?

Having the answers to these, and similar questions, will tell us how good life really is. Download a PDF article on this subject

Service Profit Chain

How does leadership impact corporate profitability? Good question. That is the very question the Management Interest Group at Harvard Business School set out to answer. The hypothesis was that profitability was a direct result of the strength of an organization’s leadership. The results of the study showed that profitability was driven by customer loyalty and supported by effective leadership styles. Additionally, it was learned that there is a direct relationship between employee and customer satisfaction/retention. If you have high employee turnover, you will have high customer turnover. In order to prevent customer turnover, a company must understand what customers value and then be able to equip employees with the tools, information, and processes needed to deliver on that value. Download a PDF article on this subject