A Focus on Customer Retention

Customer Retention

There is an extraordinary variation in the success companies achieve in customer retention. Why is this and does it matter?

One need only watch the current challenges faced by the big high street retailers to understand that it does matter.  Customers that might buy again are way easier to source than brand new ones and are likely to be a significant percentage of a vendor’s future revenues.

Customer Retention: A Bird in the hand

How does 'sales' impact customer retention?

So, is it that some companies care more than others about customer retention – maybe? But there are likely to be other reasons impacting why customers migrate away which some companies may not fully understand.

Let’s look at how the approach to ‘sales’, for example, can impact customer retention. Often there is such a heavy focus on making new sales in a desperation to hit revenue targets that the strategy to retain newly engaged customers gets lost in the excitement. Incentives to close the deal may have no or only a minimal link to the longevity of the future relationship with that Customer.

How many of us have despaired of common sense and the motor insurance market, where insurers positively give financial incentives to their customers to move elsewhere by offering them less than competitive renewal premium rates. When the cost of customer acquisition is so high, driven by market competition, why not look after “the bird in the hand”.

A US based PR company spent years trying to secure a deal to service the north American arm of a large European car manufacturer. It won huge accolades within the US trade press when it finally closed the deal. The company allocated a fair to middling account manager and one account executive to support the whole regional operations of this company. Within six months they had lost the account. Unfortunately, the heavy focus on sales within the PR company had resulted in the attention being redirected onto the next big target and only a minimal focus on the requirements of the newly acquired customer. The concept of ‘customer service’ was not ingrained within the PR company’s culture.

Channel partners

On other occasions, the issue is rooted within the approach and rigour in educating a company’s channels to market effectively.  It often happens that channel partners fail to properly represent a product or service the company is offering and newly acquired customers don’t end up getting what they thought they were buying.

Brand

Sometimes the problem is the brand itself, which might be setting unrealistic expectations or failing to shape the reality of the product in the client’s mind and creating an appropriate expectation which can lead to disappointment when the customer starts to recognise a gap between what they had been led to expect and the reality of what they got.

Infrastructure

Or there could be deeper issues within the company infrastructure resulting in the performance of the product or service, in terms of quality, having deteriorated over time. If one thinks about those struggling retailers in the news now, many have not built innovation into their product or service offerings or the way they distribute them or evolved their product ranges to help build deeper relationships with their customers to retain them.

Leadership

Similarly, the responsibility may lie with the leaders of the business, as in the sales example above, because they don’t focus on and reward customer retention amongst the staff and their business and don’t ‘get’ the true value of holding onto customers; nor may they have the management skills to achieve a change the focus. In many instances, businesses do not invest in making customer retention a broadly-based responsibility within the organisation nor do they apply appropriate resources to manage this aspect of their business. Sometimes, the whole vision and purpose of the company may have dissipated over time and maybe out of kilter with the needs of the customers it believes it’s trying to serve.

‘Loyalty’ doesn’t just happen on its own. 

Corporate movers and shakers have long known this and have notably increased their efforts to engage even more strongly with their customers since the digital revolution took off. Every day we see the likes of Google, Facebook and Microsoft battle for our attention. They want to have an ongoing dialogue, to understand their customers’ needs and to show them the products and services that those individual customers desire and will buy. Loyalty is a combination of the feelings that are generated as part of the relationship – this relates to the sensing part of our personalities – and our values, which is more about the rational stuff, which support the feelings to create the impulse to be loyal.

Building customer loyalty not only serves to reduce the cost of business acquisition through encouraging repeat purchases, but it also serves to create opportunities to sell other products or services once loyalty in a brand and its offerings have been established. There are well-established metrics which supports a company in understanding how to build their loyalty score with customers and improve their confidence in converting new business from existing companies. Over time, this loyalty can be built to a staggering 95% likelihood of repeat business, if brand, product quality and customer service, amongst other factors, remain consistent and/or keep pace with competitor developments in the marketplace.

The damage that can be caused in today’s world by dissatisfied customers is immense and transitioning to new suppliers has never been easier, so understanding these dynamics and the creation and maintenance of loyalty is critical.

Managing customer expectations

Managing customer expectations is another key part of the buying process that companies often get wrong.

A brash young city trader once requested a newly purchased top of the range bright red high-performance Ford Cosworth to be delivered to his office and was looking forward to showing it off to his colleagues. His heart sunk when a bright red much lower powered family style Ford Sierra was delivered leaving his expectations in bits and his plans massively thwarted. It was a long ten minutes before his actual purchased Cosworth arrived and he found out that his humorous colleagues had rented the Sierra as a prank to crush his overly pronounced ego!

Ensuring that the reality of a buying experience at the very least matches what the customer was expecting and not the opposite should be a key goal of anyone wanting to build an ongoing relationship with that Customer. The extent to which vendors seeks to exceed customer expectations, cost effectively, is their choice.

Alignment

Expectations will be driven by the brand proposition created by the vendor and critically with the alignment of the brand with the market in which the company is competing in, the quality and type of service and product being provided and the prices the company is charging. Customers are likely to have clear expectations set by the brand positioning the company and these expectations need to be at least met and ideally exceeded to encourage those customers to remain on board and buy again.

Having an awareness as to where customers are at in their journey with the vendor and the dynamics that encourage and discourage customer retention allows management to shape their product and service offerings in a way that reduces the risk of losing customers. The company will be on a journey itself and should be mindful as to where it sits in its own life-cycle and how the culture and its values are perceived in the marketplace. A successful company needs to ensure that it manages all the levers to build success and concentrates on how to ensure that the changes it plans as it innovates, scales and rejuvenates are manageable in a way that allows existing customers to stay onboard and extend that journey with them.

About the Author

Executive Coach and successful provider and creator of Treasury and IT services to clients. Significant project management, consulting and training experience. Positive and creative.

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