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| 68% | Perceived indifference |
| 14% | Product/price |
| 9% | They were sold by a competitor |
| 5% | They buy from a friend |
| 3% | They move away from the area |
| 1% | They die |
(Source: Capital Region Business Journal, August 2006)
The reasons why customers leave are rarely the ones that they tell you and the biggest reason of all is perceived indifference. Once a customer has left it becomes more difficult and costly to regain them.
The most important marketing investments for businesses are to be made in nurturing, retaining, and maintaining existing customer relationships. Consider these statistics:
(Sources; Gartner Group and “Leading on the Edge of Chaos”, Emmett C. Murphy and Mark A. Murphy, 2003)
This confirms that business is not necessarily about spending more on mass and traditional marketing to unknown targets, but about setting in place initiatives to retain your existing customers.
According to marketing commentator Ian Grayson, it makes no difference whether you are running a corner store or selling luxury real estate; satisfied customers generate repeat sales and can even act as unpaid ambassadors for your business.
Industry research shows that it can cost between 6 and 10 times more to attract new customers as it does to retain existing ones. For that reason, a solid base of loyal clients with a profitable projected lifetime value can significantly increase business profitability.
Consider this scenario: Assume that you run a car dealership and the average sale size by revenue is $40,000. That’s the value of one sale. Let’s assume a customer buys from your business once. This means that the lifetime value of this particular customer is, at worst $40,000. What would happen if you actually did something with the information that you have discovered from this briefing. Let’s assume that you successfully retain this customer. Ideally the customer would buy from you every 5 years. That is a total of $240,000 over 30 years. If you retained this customer, with a margin of 40%, you would have $96,000 in your pocket. This makes the difference in value between a one off customer and a retained customer, $80,000. Question One: Which would you rather have? The $16,000 or the $96,000? Question Two: How much would you be willing to invest to assure your business of the extra $80,000 in profit? The truth is there is no quick fix. It takes consistency, and it takes effort. But it takes a lot less effort, and a lot less money to retain a customer than to attract a new one. |
Studies in several industries have shown that the cost of retaining an existing customer is only about 10% of the cost of acquiring a new customer so it makes economic sense to pay more attention to existing customers. The increased profitability associated with customer retention efforts occurs because:
Buchanan, R. and Gilles, C. (1990) "Value managed relationship: The key to customer retention and profitability", European Management Journal, vol 8, no 4, 1990
What does your business currently invest in?
Based on the car dealership scenario above, it can be argued that a more profitable investment would be your customers.
Consider this:
The only sure thing that actually gives you money in business is your customers! |
Building profitable relationships requires companies to treat customers and clients as if they are strategic partners and showing them that they care about them. Customers can easily detect insincerity and they will not put up with it if there is a competitive offer available.
The same as any other investment:
Read on for unique and effective retention strategies that can be applied to your business today ……..
Before embarking on a customer retention campaign, it is important to understand why traditional methods do not work:
Spending money on traditional marketing and mass marketing in particular will not meaningfully assist in efforts to retain your customers. There is no opportunity to personalise messages sent to specific target markets and customers at different stages in the customer lifecycle.
Consider this scenario: Have you ever bought a house from a real estate agent, where you experienced a good relationship with him/her up till the point of signing, but then you never hear from them again. Instead, from that moment on, they blanket you with junk mail hoping that if they put more junk mail in your letterbox, you will sell your house with them again when you decide to move? So many businesses operate in this manner, which is arguable a waste of money and a waste of customers. |
Although Customer Relationship Management Systems allow businesses to manage customer data, they do not guarantee retained customers.
Businesses can do all the management of customer data back at the office, but unless they do something useful with it, they are not going to achieve anything in the way of retaining customers.
So paying thousands of dollars for a CRM system may be a good investment, but without the proper understanding of this information and how it can be applied to a strategically planned retention program, it will not necessarily help in retaining your customers.
Consider the number of loyalty cards you stuff into your wallets from businesses that you never frequented more than once. Now think about all those businesses that wasted all that money, hoping that these cards were going to keep you as a customer.
It is also true that many businesses, including many large corporations have reviewed and downsized their customer loyalty programs in recent years.
An article in the June 2002 issue of the Harvard Business Review, called “The Mismanagement of Customer Loyalty” discussed several large corporations which were tracked over several years, and the conclusions were that Customer Loyalty Programs were typically ineffective and in fact mismanaged in terms of what they were trying to achieve. The authors of the study concluded that much of the common wisdom about customer retention via loyalty programs was unjustified or quantifiably unprofitable.
There are many methods used by businesses whereby they provide little alternative, but for the customer to return to them. These methods typically have the same result, they turn customers away in the long-term.
Consider this scenario: A retailer of new cars insists that he does not have to do anything to retain customers because they have to come back to him to get their cars serviced every few months otherwise their warranties become null and void. Remember, customers do not like to be told what to do. |
The key rule to business growth according to well known business writer Wendy Evans is to "build relationships regularly and relentlessly, creatively and caringly. Keep in touch with your prospect and client base regularly and relentlessly within 90 days... Never let more than 90 days go by without contact."
Regardless of the type and size of a business, there are certain key strategies that can be employed by all in the important area of customer retention. Implementing them early can often mean the difference between successful long term growth and the constant search for new regulars. As well as the occasional customer satisfaction survey, Alan Bonsall, brand expert and partner of Queensland marketing firm br&new, recommends businesses establish regular written contact with customers as a method of maintaining a lasting and profitable relationship. This could take the form of a company newsletter that outlines new offerings, business news and any changes in staff line ups. This serves to inform customers as well as keep your business name in front of them.
Using sophisticated technology and database equipment it has become increasingly easy for businesses to make attempts at customer retention through database marketing programs. Establishing a detailed client database will allow businesses to keep track of personal information and individual preferences of all their customers. Enabling businesses to increase customer retention rates, repeat sales, customer referrals and profitability.
To achieve positive results using internal databases and customer retention programs, strategically planned campaigns should be designed and carried out with unique customer and target markets in mind as well as identifying the stage at which a customer is in the Customer Lifecycle. This will determine the amount and type of retention strategies to be implemented. It is important that the campaign is effectively scheduled and maintained on a 90 day cycle so that customers remember who you are, to avoid your materials being viewed as “spam” or “junk mail”.
The best type of contact is:
Examples of Customer Retention Initiatives:
Customer retention initiatives should be tangible and imaginative, and by appealing to all the senses will be valued by your customers and clients.
Greeting Cards not only as a means to remind your clients about who you are and what you do, but also as an avenue for developing a personable rapport with your clients. Cards can be used to say thank you, congratulations and best wishes. Sending personalised greeting cards to all your customers is the best value-for-money and high-impact solution for making sure that you stay in touch with those who are most important to your business, ensuring you maintain the personal relationship you had with them when they first purchased from you.
Certificates are a novel means of building profitable customer relationships and showing your appreciation. Clients love to be acknowledged for their hard work, their company's success or just for being a great client. So why not send a prestigious and personalised certificate of appreciation, with your own logo and message. You will achieve further brand awareness from your certificate being prominently and permanently displayed by your client.
Other creative strategies, perfect to say 'thank you' or to celebrate the success of your favourite client, accompanied by a personalised card to provide that final touch:
For the ultimate pampering experience, treat your customer to a relaxing, holistic massage that will help them feel re-energised and ready for their next business challenge.
Reward repeat customers and retain them for life:
Retail Commentators: Joel R. Evans, Ph.D. & Barry Berman, Ph.D. |
Doug Faber, international marketing director of CRM vendor salesforce.com says if managed correctly, a Customer Relation Management system allows details of every customer transaction to be stored and shared with others in a firm, significantly improving the quality of future service. Every time a customer calls, staff can instantly access details of their previous purchases and any outstanding issues. If there is something they usually order but have not done so for a while, staff are able to prompt them. Fabre says from a customer’s point of view, such systems make them feel valued and more likely to return in the future.
This approach to marketing is called relationship marketing and it involves understanding the needs, goals and desires of key stakeholders, which include customers, employees, marketing partners and the financial community, who all have an impact on the success of a business.
Relationship marketing involves developing separate offers, messages and services that relate to the individual needs of stakeholders. The aim is to capture the largest share possible of each customer’s expenditure by building loyalty and focusing on customer value.
The 8 rules of relationship marketing and customer retention strategies according to marketing and communications specialist Renee Hancock are:
Keeping Track and Monitoring Success
With the technology available to businesses today, there is no excuse for not knowing your customers, both as individuals and as profit to your company. Their business information, interests and history with your company should be as accessible as your nearest computer.
Marketing Director of Cynergy Data Nancy Drexler explains, all this information should be stored and updated in customer databases. Finding out which customers are the most profitable to you is as easy as creating a spreadsheet.
Technology makes keeping in touch a much simpler task today than it was years ago. Online surveys are a useful tool for monitoring customer satisfaction, if you have the resolve to follow through with solutions to potential problems.
Use tracking systems to keep records of anniversaries customers have with your company, their birthdays and other occasions, and to automatically generate a card, note or gift without requiring an excess of time spent.
If you are focused on success, the right marketing plan might serve as the kick your business needs to keep current customers and gain new ones at the same time.
Make your business one that provides results and value to your customers. According to Drexler this can be achieved by letting them know you are different from the competition, and follow through with your promises. And remember that the success of your business is dictated not only by how many new customers you bring in, but also by how many of them you keep.
According to Drexler, the first step towards a dedicated retention undertaking is getting to know your customers both inside and out. This includes learning about not only their business interests but also some things about them personally. Make sure that you share this knowledge with your staff so they can interact with clients accordingly.
Contact which is not personalised from business is “hey-you” contact, and it is almost certain to get the response of “I am sure I could get better service somewhere else, even if I have to pay more for it” Every contact you have with an existing client should be personalised, or you should not be contacting them at all.
Failure to personalise shows indifference to the relationship, which is why 68% of customers leave a business.
By taking a few simple steps and implementing strategic customer retention initiatives and techniques, businesses will begin to reap the rewards of building profitable and long term customer relations, at very little cost. Start by following these simple steps:
Customers like to feel they are in control and smart about the choices they are making. Retention strategies are able to take advantage of this by offering promotions of various kinds to encourage consumers to engage in a continuous behaviour and feel good about doing it.
Promotions may range from discounts and sweepstakes to higher concept approaches such as thank you notes and birthday cards. Promotions encourage behavior. If you want your customers to do something, you have to do something for them, and if it is something that makes them feel good then they are more likely to complete a transaction or are more willing to learn about your product and service offerings.
Retaining customers means keeping them active with you. If you do not, they will slip away and eventually no longer be customers. Promotions encourage this interaction of customers with your company, even if you are just sending out a newsletter or birthday card.
Novo, J, 2004 Drilling Down Turning Customer Data into Profits with a Spreadsheet, Booklocker.com, Inc.
People buy from companies because they trust them. In almost all cases, this relationship slowly goes downhill after the initial purchase. To avoid this happening, companies need to stay in touch with their clients regularly.
Business owners often make the costly mistake of servicing a customer once then assuming they will remain a profitable customer or client without having to maintain or grow that relationship. Remember the following before you spend your time and money pursuing new customers and clients you do not currently have a relationship with:
Not All Customers Are Created Equal
The next step to knowing your customers is realising their varying value to your company. Not all customers are created equal. They do not all patronize your business consistently; they do not all generate equal profits; and they do not all respond to the same incentives. Therefore, they need not all be treated equally.
In general, the 80/20 rule applies to most business operation. That is 80% of sales come from only 20% of the customer base. If you divide customers into tiers, 20% would get the bulk of your marketing dollars, and the remaining 80% would be divided into a middle segment of customers with potential to grow, along with a bottom segment that provides little to no profitability and might possibly even counteract your profitability.
The fact is that businesses do not necessarily want to retain all their customers. This is because typically, 40% of customers in any business cost more than they are worth.
It is important to segment your customers into:
Another means of prioritising your most profitable customers is based on the "relationship ladder of customer loyalty", whereby customers are grouped according to their level of loyalty:
| Top Rung of Ladder | Partner |
| Advocate | |
| Supporter | |
| Client | |
| Customer | |
| First Rung of Ladder | Prospect |
The relationship marketer's objective is to "help" customers get as high up the ladder as possible. This usually involves providing more personalized service and providing service quality that exceeds expectations at each step.
Acquiring new business is certainly necessary for the ultimate growth of a company, but marketing to your current client base is of equal, and often greater, importance than playing to an audience of unsigned business.
Allocating your marketing dollars
Top Ranking Customers:
Nancy Drexler Marketing Director of Cynergy Data believes businesses should focus marketing efforts primarily on the top customer tier, as they are the primary profit-builders. It is important to keep this group aware of your presence through carefully designed marketing efforts. Making these high-level clients feel as if they are company insiders and privileged to information that average clients are not, is an effective approach to customer service with this group.
Express to your most profitable customers that they are important to you by introducing new ideas and products to them before you carry out a public launch by:
1) Conducting in-person visits to follow up on business matters
2) Addressing their complaints with promptness and care.
Your top-ranking customers most likely have the motivation and endurance to keep producing without your supervision; your challenge is to keep them producing with you.
Middle Ranked Customers:
Dealing with the middle segment of customers is a more difficult endeavor. This is because this segment is made up of those customers with the potential to grow into big volume clients if encouraged and worked with.
It is difficult to determine how much energy to expend on this group, but it is may be worthwhile in the long run. Although they might not be as established in their businesses as top-tier clients, you can guide them and help increase their profitability, which will increase their loyalty to you.
Lowest Ranked Customers:
How to market to your least valuable customers is a decision you must make carefully. If you feel confident that members of this group have growth potential, then you might deem an investment of marketing energies worthwhile. Programs involving major incentives might be an appropriate motivator for such customers to increase business.
However, it is important that businesses face the facts. These customers add little to the overall success of business, and spending time and money on this group might be a waste of resources. In this case, allowing a turnover might be the best plan of action.
Good retention strategies are effective in building barriers to customers switching to competitor products. This can be achieved by:
Customers want something measurable, something they can see and touch. Therefore, give them the tangibles they desire. Businesses can entice customers to keep coming back by using a variety of small and relatively inexpensive gestures including incentives, add-ons, discount coupons for future purchases and loyalty discounts.
As we know, common practices such as reciting from a script, passing customers and their problems off to another department or countering a customer's concerns with, "That's not company policy," are not, and will never be, effective methods of retaining customers in today's marketplace.
An important step towards effective customer retention is investing in the right people. When it comes to choosing your customer contact team, skills and experience are not nearly as important as attitude and interest. Skills can always be taught and experience can always be gained but attitude is inherent.
Everyone on your team must embrace and be striving toward the same goals, being of service to the customer, every hour of every day. The process by which they will go about doing that is something you can teach them. Their desire to do it, however, is something that comes from within.
"People are definitely a company's greatest asset," Mary Kay Ash, the founder of Mary Kay Cosmetics, once said. "It doesn't make any difference whether the product is cars or cosmetics. A company is only as good as the people it keeps."
Consider this scenario: Empowering staff Your success and ability in retaining customers will only be achievable if you are able to provide value and a superior service offering to your customers. The frustration and even fury that customers feel when they cannot find a single knowledgeable person with any kind of decision-making authority to do anything more than swipe a credit card for a purchase should be reason enough to get your staff trained. Service reps need to be more than money-takers. Even temporary staff requires proper training so that they can be a help to your valued customers - not a hindrance. Staff need to have the tools available to offer customers as many options as possible. If they are not given the authority to make certain decisions or offers, they must, instead, have the resources and information available to quickly find the person who does. People choose to return to companies whose representatives impress them and serve them well. Customers appreciate someone who cares enough to go out on a limb, spend extra time helping and understanding them, who offers compensation as well as incentives, and who can make decisions or who is willing to advocate with a decision-maker on their behalf. In essence, to keep your customers, you must, above all, keep them happy and toward that end, it is your actions, not your words, which will speak most loudly about your commitment to that goal. Make sure that your staff recognises your company's best customers and works to make them feel special. When customers feel special, they will go out of their way to do business with you and recommend you to others. |
Human Caring for customers goes a long way towards customer retention
Put aside for a moment everything you have learned in customer service training programs. Put aside every business advantage a glossy customer service philosophy is supposed to deliver. Put aside all the ideas of customer experience, loyalty and retention and positive word of mouth. Put aside the very idea of the customer. Just remember two simple principles:
The first is to love your work. Work is love made visible, said the poet Kahlil Gibran. Work is where our sense of purpose and the music of our passions intersect to create visible love in the form of work.
The second principle is ubunnu (a Zulu word which literally means involving respect and concern for one’s family and neighbours). Imagine what would happen if all the customers who came into contact with anyone in your business, in person or on the phone, were engulfed in a field of people who love their work and who connect with and care deeply for each person as if they were a most precious friend.
These principles are not a strategy for business success, they are a strategy for human success. Business success can only flow from human success. Robert Rabbin, president of center/SourceSolutions.Inc
Lastly, you should provide your customers with unexpected extras, whether these are small unexpected gifts or providing extra attributes to your product. Whatever they may be, unexpected extras are sure to make your business more memorable.
Customer retention campaigns do not only entail planned distributions on a regular basis. Cement your relationship with your clients by sending personalised gifts throughout the year to acknowledge other milestones, business transactions and accomplishments such as:
Despite the best efforts in the world, sometimes unexpected occurrences result in less than perfect service delivery. For example, a deadline is missed or an order is lost and a customer walks away dissatisfied. According to research by the Sydney based Entrepreneur Business Centre, the average dissatisfied customer will tell 11 others about their experience. The result is a lot of negative publicity.
However there are certain steps that can be taken to not only minimize such a fallout, but win the customer back.
The first task is to apologise and quickly. If an error has been made or an expectation unfulfilled, acknowledging the fault is very important. For customers, the most frustrating thing about errors is that no one will take responsibility.
Once the problem has been noted and the customer contacted, outline a clear plan of how it is going to be resolved. This may involve quickly replacing a faulty product or arranging express delivery of a missing item. Demonstrating a willingness to negotiate any situation can do much to smooth the waters.
Once the problem has been resolved, follow up with a phone call or a brief note to ensure all is well to help strengthen the connection and increase the likelihood of the customer remaining loyal.
“People on the whole understand that things can go wrong” says David Donohue, vice president of the Public Relations Institute of Australia. “But if they can see that a business has copped it on the chin and is prepared to do what it takes to set things right, they are usually happy.”
Importance of focusing on customer loss and Win back
Whether you are a small company or a Fortune 100 corporation, the time is now to establish customer loss and win back initiatives alongside acquisition and retention programs, for saving at risk customers and winning them back if they leave. Technology and know-how are converging to make this more possible for any company, regardless of size. It is the next frontier for those companies who are truly committed to leveraging the loyalty and profits from their customers.
Jill Griffin and Michael Lowenstien, Why Customer Win-Back is Critical to Your Success
The long-term benefits of a successfully launched customer retention program include not only your customers' increased value to your business, but also the prospects that these customers recommend. Customer retention programs are meant primarily to make your customers feel known and special, which gives them a sense of loyalty and commitment, a reason to stay. Nancy Drexler Marketing Director of Cynergy Data |