How to Match Customer Retention Initiatives with the Customer Lifecycle

November 2, 2010 By Leave a Comment

The best customer retention initiative to implement for a specific customer often depends on their position in the customer life cycle.  What’s more, often the earlier in the customer life cycle that you execute a customer retention initiative the more effective and higher the overall ROI of the initiative.  So what should you do and when?

When considering the customer life cycle, we split it up into four distinct sections.  These sections are shown below along with the value, i.e. profit or gross margin, that different types of customers contribute to the business at different parts of the cycle.

New

This is the time when a customer is just starting their relationship with your company.  The length of time a customer spends in this stage depends on your business but it is normally anywhere from a few days to a couple of months.

The largest group of customer retention strategies that can be implemented in the New stage of the customer lifecycle is Onboarding.  Onboarding is the process of bedding a customer into your organisation and includes ensuring that their personal data is correct, that they understand the products/serivce they have purchased and how to contact the organisation.  We have proved time and again that customers that are properly onboarded will stay with the company longer and spend more money than other customers.

Onboarding initiatives can be as simple as calling all customers in their first 30 days to confirm contact details and resolving any teething problems that they might be having.

Existing

These are your company’s current customers and fall into several groups.  The first is the Ideal customer; they continue to use and grow their use of your products.  The second are the Unhappy customers, who although they still use your products, are discontented.  Lastly, you have customers in Silent Attrition.  These customers still have your products but no longer use them actively, for example, credit card accounts with little or no spending.  They are generally a drag on company value because you still have to service them but they add no profit to the business.

Customer retention strategies for existing customers start with classifying each type of customer (Silent Attrition, Ideal and Unhappy) and then creating appropriate initiatives to change their behaviour.

For instance, for customers in Silent Attrition you must determine why they are no longer using your product (are you their “back of wallet” credit card for instance) and then determine how to have them start to use your product again.

One example initiative for the “back of the wallet” issue is to target customers with a campaign to increase their use of direct debit orders.  Once they have started using the card for regular purchases they are more likely to use it in day to day shopping.

Exiting

These customers are on the way out.  They may still use your product but they are looking for the exit and actively seeking alternatives.  Given time, they will leave.

Your initial challenge in creating retention strategies for Exiting customers is to identify them.  One way is to uncover the tell tail signs that customers considering a move provide to your organisation.  For instance, if you are a bank, they may make a request for the loan pay-out details.  As you uncover these indicators, you should create initiatives to target those customers with a proactive contact.

Where customers purchase multiple products from you, you should also try to understand the order in which customers drop their product relationships when they are exiting because this can give you another good early warning.

Once you can spot existing customer you can create effective customer retention strategies to target those customers.

For instance if a request for loan pay-out details is an indictor of imminent exit for your customers you might send all customers requesting such information a special discount offer on new loans.  This means you have your best foot forward as they investigate their options.

Exited

Putting it simply, these are no longer customers.  They have left.

Strategies that are aimed at recapturing customers that have left the organisation are generically called Winback strategies.  This is the most expensive and lowest ROI place to try to implement your customer retention strategies.  Mentally customers have already moved to another organisation and it takes a large inducement to bring them back.

If you choose to execute Winback strategies then you will need to carefully manage the level of incentive that your staff can offer to customers.  For instance, you will need rules to tailor the incentive level to each specific customer in order to ensure that the level of inducement is not larger than the future business generated by that customer.

When executing Winback initiative a good approach can be to send all customers asking to close an account to a specialist team who have the training and access to special offers to try a last ditch effort to retain the customer.

When you create customer retention initiatives you will need to justify them based on the return on investment they will generate and this can be easier or harder depending on the position in the customer life cycle.  Generally, the later in the life cycle, the easier it is to attribute results to your customer retention initiatives and therefore prove a suitable return on investment.  However, intervening earlier is less expensive and more effective, but harder to prove.  Don’t let the difficulty of proving the ROI for early intervention deter you because it can pay very good returns.

For more information on how to implement effective customer retention strategies and customer management approaches give us a call.

By Adam Ramshaw

Filed Under: Customer Loyalty Management, Customer Retention, General Tagged With: ,

The Secrets of Great Customer Experience Organizations are not so Secret

August 22, 2010 By 2 Comments

When a new business buzz makes headlines, a new buzz of how to’s follows.  Customer Experience Management (CEM) is no different.  But, to me, Customer Experience Management is mostly a new theatre for existing skills, not a new set of skills.

Forrester does good research but in this recent article: Three Secrets Of Success For Customer Experience Organizations, they may be looking for problems that do not exist and finding solutions that are generic.

The three Customer Experience Organisation secrets they uncover boil down to: good leadership, collaborative teams and enough resources to deliver.  These are not the special and unique secrets of success for Customer Experience Organisations.  They are the secrets to success for every non-line management support organisation.

That is not to say that there is no specialisation required to design and build great customer experiences.  There are indeed a range of domain specialist skills needed when running a customer experience management organisations.  These include a knowledge of the key customer focused tools/concepts such as Net Promoter Score and Moments of Truth. It is also important to understand and be able to apply techniques such as Touch Point Mapping.

Also, a working knowledge of how customers respond in different situations is important.  Understanding that customers don’t necessarily make rational (or even conscious) decisions about what is most important to them in a specific customer experience setting is an important, non-obvious, insight.

To be successful in CEM staff must care about making a difference in the customer experience.  They must also have an intuitive understanding that a great customer experience is not just great for the customer but also great for the bottom line of the company.  Designing an experience that customers will come back for is not as important designing one that customers like and meets the commercial goals of the company.

Beyond these domain specific skills, however, the skills required of the customer Experience Management team can be found in traditional quality management approaches and their later incarnations such as Six Sigma and Lean Six Sigma.

In fact many of the “lead from the middle” attributes of successful business improvement teams can, and should be, found in the Customer Experience organisation.  Rarely does the customer Experience management team have a line management role; it is more often deployed across business units as an enabler, inspirer and facilitator to the business.

In this deployment, the cross-functional coordination skills of the team members are important, as is clear CEM leadership from senior line management.  Again these are not special Customer Experience attributes– they are attributes required for any non-line management enabler team.

Before I close, there is one specific item that I will disagree with from this paper and it has to do with resources:

Their own budget. When customer experience projects must compete with projects from operations and product management, they often fall below the funding line because those groups’ goals — like revenue generation — carry more weight.

In the Customer Experience Management work that we do we ensure that business cases are created to support all changes.  To be successful long term, CEM must stand head to head with the other areas of the business  in generating shareholder returns.  If it is treated as a “special case” it will never get an equal seat at the table with sales, marketing, operations and the other areas of the business.  And, as we know, “special cases” only last as long as they are fashionable.

If you’d like to learn more about Customer Experience Management download our 4 Steps to Customer Experience Management whitepaper.  It examines the process of determining the value, designing and executing Customer Experience Management (CEM) programmes.

By Adam Ramshaw

Filed Under: Best Practices, Customer Experience Management Tagged With: , ,

An introduction to Customer Life Time Value (LTV) and Loyalty Marketing for SMEs

August 19, 2010 By Leave a Comment

We recently participated in a written interview for the SME magazine of one of our major Australian banks. The article was not all about us, so some of the input was edited to meet space restrictions; but we post the transcript here for those of you interested in Customer Lifetime Value and loyalty programs.

(Please excuse us for retaining the Q&A structure of the original).

Q: Please explain the theory behind customer lifetime value.

The concept of customer lifetime value is quite simple; customers give you value by buying from you now and if you do a good job, buying from you again in the future. Lifetime value is the sum of these two cash flows.

If your service makes it more likely that the customer will return in the future and spend again, you have increased the customer’s lifetime value.

If bad service decreases the likelihood that they will ever come back, you have just destroyed future cash flow, or decreased that customer’s lifetime value to you.

I first came across the concept in a book written by a Dallas Cadillac salesman in the 1980’s. He always personally delivered the car to a new customer, freshly detailed, with a full ‘tank of gas’ and a picnic basket in the ‘trunk’, paid for personally.

A good investment as it turns out.

The majority of his customers bought 3 cars from him in the next 6 – 8 years compared to the one sale enjoyed by his peers. They came back because they remembered the experience. He viewed each customer’s value as the commission he earned from 3 car sales, not 1, so he could afford to invest a little more up-front in the relationship.

These common sense concepts are no less relevant today;

  • Consider the future potential of customers when you serve them, look past the current sale and think about what you can do to make future business more likely today. In fact, add up the value of your best customers for as far back as you can to get some idea of the potential value a new customer could have if they become a ‘best’ customer.
  • Customers that remember you favourably are cheaper to attract – they do it of their own accord. Attracting new customers, strangers, is expensive. You have to advertise in some way and that is wasteful because you pay for the attention of a whole lot of people who do not become customers. At least you know customers needed your products once, which makes them qualified candidates, at the very least, better than mass marketing to strangers.

Just don’t spend more on making them really happy than they will likely contribute to your profitability in the future, allowing for the fact that cash today is more valuable than cash tomorrow.

Q: From an SME’s perspective, what are the benefits in considering existing and potential customers from a lifetime value perspective?

Small companies cannot afford to view marketing as solely about conquest; common wisdom says that retaining a customer is 5-7 times cheaper than converting a stranger into a customer, for the same revenue. Understanding the differences in the profitability of business that comes from existing customers versus prospects really helps you balance the allocation of modest marketing budgets.

Q: What is the latest thinking / best practice in loyalty marketing?

Certainly for SMEs with repeating business, best practice is to understand the customer’s buying cycle so you can present a marketing offer at the correct time; when it is relevant because they are thinking of buying again.

Give them a reason to not Google. Otherwise your email/flier/letter is spam.

Q: What top five tips would you advise an SME to consider when embarking on a loyalty marketing program?

Six tips here, one extra to encourage repeat visits;

  1. Customer loyalty makes you more money than any other strategy. Think about what would make customers come back, at an acceptable cost, every day.
  2. Think about loyalty marketing as a way to keep good customers loyal and possible good customers interested, not as a way to give free stuff to everyone
  3. Think about how to only reward incremental business, not business you were going to get anyway
  4. The best loyalty program is to always have the best product at the cheapest price. Can you confidently do that and avoid bankruptcy? If you can, stop reading this article and start promoting!
  5. Loyalty marketing raises expectations of delivery quality for customers. Make sure you can deliver consistently to expectations; the customer backlash will be impressive but not pleasant.
  6. Do the numbers. As painful as it is, fire up Excel and work out how much extra you will make and how much it will cost you if you are successful increasing customer loyalty with your loyalty marketing. Personalized service becomes an entitlement in customer eyes instantly, so taking it away causes you angst. If you cannot see meaningful profits, be very careful.

We can help you with these 6 tips, happy to, if you need it.

Q Please comment on: Cost of acquisition vs. retention

It is 5 – 7 times more expensive to acquire new customer revenue than existing customer revenue if you get it right

Q: Please comment on: Opportunities to build share of wallet

If you remember what customers’ want/like/need you are more convenient than a competitor

Q:Please comment on: Engaging consumers suffering from loyalty program overload

Personalise! SMEs are supposed to be more personal, prove it. Large scale programs must treat you like a number.

Q: Please comment on: Making loyalty program retention attractive and easy

Relevant rewards are the key.

Q: Please comment on: Developing strategies to encourage and reward referrals

Always reward the customer that takes up the referral as much as you reward the customer doing the referral. We all want to feel like we have done a favour, not profited from our friends.

Q: Please give a good example of loyalty marketing?

I have personally bought 3 cars from a single salesman. He calls to tell me when the residual lease value matches market value of the car. He does it for all of his SME clients because it saves them the trouble of renegotiating end-of-lease ‘stuff’. An electronic calendar and 2 phone calls have tripled my lifetime value to him, so far.

Filed Under: Customer Analytics, Customer Retention Tagged With: , ,

Making Changes in your Customer Experience

August 1, 2010 By Leave a Comment

This article in the Australian Financial Review (Kmart reborn in program of change) was a timely follow up to my blog post of a few weeks ago when I looked at whether announcing changes in customer charters was good or bad for customer satisfaction.

In that article I argued that it was better to build the customer experience from inside the organization and let the customers gradually experience the difference.  The other approach: announce a major change in the customer experience to staff and customer, carries the risk of increasing customer expectation and lowering customer satisfaction.

Let’s look at the Kmart example as a case study for the “get it right then announce it” approach.

In this article Kmart announces that they have been quietly making and testing changes in their offering.  They have not however, been announcing those changes in their advertising to customers.  One example of the changes tested is running very special specials that they only advertise in store.  In one instance they dropped the price of jeans from $20 to $10 and sales grew 10 fold.

Now however, the game is changing.  Kmart is launching the new price strategy in a very visible advertising campaign.

Just by the way, skeptics would say that it’s easy to sell if you halve the price but it hurts overall profit levels.  In this case the reverse is true.  Net profit levels at the company almost doubled year on year based on the company’s ability to negotiate better deals for the higher volume from their suppliers.

My guess (I have no inside knowledge) is that there is much more to this story than meets the eyes.  In the past Kmart has pursued a “high-low” pricing strategy that has not caught the consumer’s attention.

In all likelihood Kmart have been testing a few different approaches to improve business.  Perhaps they tried a high price strategy as well as the low price strategy that is outlined in this article.

However, now the testing is over and they are ready to launch the successful strategy as their new approach.  But all that we as consumers see is the strategy that worked the best: the low price strategy.  We haven’t seen the ones that didn’t work so well.

Consider the other way that they could have approached the change management equation.  They could have decided on a new strategy, engaged an advertising agency, launched a big advertising campaign and raised (lowered actually) consumer prices expectations.

From that day forward customers walking into Kmart stores would have had new expectation levels and benchmarks for satisfaction.  Even if management selected the correct strategy (a smaller range of low-priced products) the inevitable teething issues faced in the transition would have led to many instances of less than happy customers.

Instead the organization ensured that the back-end systems, merchandise selection plans and logistics all supported the right strategy.  The result is that the organization is able to launch a successful new business strategy having already tested it and removed the kinks.

There is one last item that I think is interesting here and that is the role that word of mouth marketing had supporting the right strategy.  When there is no advertising campaign for a change in company positioning, the only way that customers can find out about the change is via their friends and family.

Selling 10 times the number of jeans does not happen because the person in store buys 10 pairs of jeans.  It happens because that person buys two or maybe three pairs and tells their friends.  That is how the soft launch and change in customer experience (low prices) permeates through the customer community.

At this pint prices are lower than people expect and so their satisfaction is higher.  Compare this to the alternative approach when expectations are inflated through the advertising and can only be confirmed, if prices really are lower, or defeated, if prices are not lower.

If you are considering embarking on a customer experience management project you might like to download our free Customer Experience Management White paper for practical tips and suggestions on how to approach the issue.

This article in the Australian Financial Review (Kmart reborn in program of change) was a timely follow up to my blog post of a few weeks ago when I looked at customer charters.

In that article I argued that it was better to build the customer experience from inside the organization and let the customers gradually experience the difference.  The other approach: announce a major change in the customer experience to staff and customer carries the risk of increasing customer expectation and lowering customer satisfaction.

Let’s look at a case study for the get it right then announce it approach.

In this article Kmart announces that they have been quietly making and testing changes in their offering.  They have not however been announcing the changes in their advertising to customers.  One example is that they have been running very special specials that they only advertise in store.  In one instance they dropped the price of jeans from $20 to $10 and sales grew 10 fold.

Skeptics would say that it’s easy to sell if you halve the price but it hurts overall profit levels.  In this case exactly the reverse is true.  Net profit levels at the company almost doubled year on year based on the company’s ability to negotiate better deals for the higher volume from their suppliers.

Now however, the game is changing.  Kmart is now launching the new price strategy in a very visible advertising campaign.

My guess (I have no inside knowledge) is that there is much more to this story than meets the eyes.  In the past Kmart has pursued a “high-low” pricing strategy.  In all likelihood Kmart have been testing a few different approaches to improve business.  Perhaps they tried a high price strategy as well as the low price strategy that is published in this article.

Now the testing is over and they are ready to launch their new approach.  But all that we as consumers see however is the strategy that worked the best: the low price strategy.  We haven’t seen the ones that didn’t work so well.

Consider the other way that they could have approached this change management equation.  They could have decided on a new strategy, engaged an advertising agency, launched a big advertising campaign and raised (lowered actually) consumer prices expectations.

From that day forward customers walking into Kmart stores would have had a new expectation levels and benchmarks for satisfaction.  Even if management selected the correct strategy (a smaller range of low priced products) the inevitable teething issues faced in the transition would have lead to many instances of less than happy customers.

Instead the organization soft tested a few different business strategies and ensured that the back end systems, merchandise selection plans and logistics all supported those strategies.  The result is that that the organization is able to launch a successful new business strategy having already tested it and removed the kinks.

There is one last item that I think is interesting here and that is the role that word of mouth marketing had supporting the right strategy.  When there is no advertising campaign for a change in company positioning, the only way that customers can find out about the change is via their friends and family.

Selling 10x the number of jeans does not happen because the person in store buys 10 pairs of jean.  It happens because that person buys two or maybe three pairs and tells their friends.  That is how the soft launch and change in customer experience (low prices) permeates through the customer community.

Prices are lower than people expect and so their satisfaction is higher.  Compare this to the alternative approach when expectations are inflated through the advertising and can only be confirmed, if prices really are lower, or defeated, if prices are not lower.

By Adam Ramshaw

Filed Under: Customer Experience Management, Customer Loyalty Management Tagged With:

How to retain customers who are leaving

July 20, 2010 By Leave a Comment

Customers, just like products, tend to progress through a lifecycle, a customer lifecycle in this case.  If you manage this process properly then you will have a customer who continues to add value to your organisation.

But let’s face it, sometimes customers will still want to leave the organisation so in that case, the question becomes how do you retain customers who are leaving?

One effective way to do this is to create a Customer Save Team.  A Customer Save Team should become the focal point for your organisation when it comes to turning around customers who indicate they want to leave.

As such it should be the place that all customers are sent in order to perform the account close process.

The Save team has a number of tools in their customer toolkit that mean they are the best placed to prevent a customer from existing.

Those tools include:

Great product expertise

Save teams should be staffed by your best and most capable customer service staff.  That expertise is your first tool to retain customers.  If you use staff with the longest and most varied experience in the company, they will have the best depth of knowledge about how it operates and what is possible.

With that knowledge they have the very best chance of being able to give the customer what they want, when no-one else is sure.  They’ve been around the longest and know all of the unwritten organisational gems that might just mean the difference between the customer staying and going.

Save offers

If great company expertise is not able to keep the customer then the next step is Save Offers.

Save offers are pre-determined offers that are only available to the staff in the Save team.  They are a special set of offers that are made to customers who have asked to close their account, in an effort to change the customer’s decision.

When you construct your save offers you need to think in a strategic fashion, don’t just think about giving discounts.  Giving a discount will often keep the customer a little while longer but unless the offer changes the approach or extends a contract period all you are doing is delaying the customer attrition and reducing margin at the same time.

Make sure that you schedule formal and informal review sessions of the offers with question and answer sessions between the Save Team and other areas of the customer to uncover which scenarios are working and not working.  Identify how changing product features can be used to enhance the save process.

Ensure that you update and expand the rules as new approaches become possible and eliminate those that are not longer applicable.

You also need to ensure that the organisation validates the value of the Save Offer with the overall value of the customer.  You need to be sparing in which offer you make to which customer.  Customer value should be the basis for making that decision.

Move and follow programs

One of the specific offers you can create are Move and Follow programs.  If you really can’t save a customer because of a structural or geographic issue try to put them into a Move and Follow program.

Customers should be put into a Move and Follow program when they make changes in their life that mean that they do not need your product for a period of time.

Examples of when this happens include:

  • Car insurance customers who are selling their car
  • Bank mortgage customers who are selling their house
  • Telco customers who are moving residence.

Move and Follow programs focus on keeping in touch with customers during the time that they do not need your product or service in order to reconnect when they again have a need.

Don’t let them get to this stage

Of course the ultimate way to prevent a customer from leaving is to make sure they never want to leave.   To prevent customers getting into the Exiting phase of the relationship you should look at implementing a holistic individual customer strategy.

You should also ensure that you constantly improve your business.  A tool like Net Promoter Score (NPS) and transactional NPS can be a good way to do this.

By Adam Ramshaw

Filed Under: Customer Loyalty Management, Customer Retention Tagged With: , ,
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