Among the commonly accepted business precepts is the fact that retaining the existing customers is far cheaper than winning new ones. So it makes a great deal of sense to make sure that you are keeping your current roster of clients happy.
But in the real world, that’s not always possible, especially when circumstances beyond your control arise and a customer decides to take his business elsewhere.
That doesn’t mean, however, that your customer is lost for good. In fact, even before your client is fully out the door, start formulating a work-smart strategy for winning back the business.
Win-back strategies
A recent study showed that every year a typical business enterprise loses 20-40 percent of its customers. Companies should identify how many defections there have been each year but many do not. Win-back strategies make an effort to reactivate and revitalize relationships with high-value, lost customers. Recovering lost customers who have defected to competitors or rejuvenating lapsed customers who have simply stopped doing business in the product category provides a major opportunity for most companies.
Win-back consists of identifying which customers have been lost or are about to terminate their relationships, reasons for losing high-value customers, effective methods for re-contacting lost customers and offers that communicate the benefits of reactivation.
In some customer-organisation relationships, customers must notify state their intentions to terminate the relationship. For example, a customer may notify a tennis club that membership is being cancelled. In other situations, customers never make it known that the relationship has been terminated. Customers may buy less and less or they may abruptly stop buying.
A restaurant may never know what happened to the regular customer who is lost. Establishing a process that requires customers to notify the company in advance that they intend to terminate the relationship provides the company with some time to figure out what went wrong and to then initiate a win-back action. By using analytical programmes in the customer relationship management (CRM) system, it may be possible to identify patterns that signal a customer is about to defect.
In many CRM systems, the process will automatically initiate an action to retain customers before they lapse. In some industries, such as the magazine subscription industry, it is fairly easy to detect lapsing customers. It is evident, for example, when a subscription is expiring and the customer has yet to respond to notices for renewal.
In an effective CRM system, an automatic trigger may be set off if a customer is identified as having a high risk of defection to a competitor and if a customer is determined to be of high value. A win-back strategy would use a proactive approach to try to rekindle the flame. The customer would be offered some special consideration or sent a message via e-mail, a letter, a brochure, a telephone call, or a personal visit to bond the relationship.
Low-value customers
We must remember that some customers have a low lifetime value and the organisation may not want to re-establish relationships with those who demand too much service without a corresponding amount of revenue. Thus, an initial aspect of a win-back strategy is to profile customers by lifetime future value. A win-back strategy should identify and focus on high-value customers who show the greatest potential to respond to win-back efforts. It is not worthwhile to try to win-back low-value customers.
There are many types of customers a company simply does not want. For example, most low-value customers buy strictly on price. These price-sensitive buyers always pit one company’s bid against a competitor’s offer and are highly likely to switch brands or companies. If there is a sale elsewhere, their business follows. Bad credit risks and customers who pay late, like price-sensitive buyers, are, as a rule, undesirable as customers. Of greater concern is the chance of ignoring a declining value to a key customer base.
Some customers will never be satisfied and some customers are unacceptable because they don’t respect proper business behaviour. The old saying that the customer is always right,” must be judged with respect to the cost to employees of caring for people who are more trouble than they are worth.
Establish why customers terminate
Some customers switch brands for variety, some find a competitor has better relative advantage, such as a lower price and some are dissatisfied because the brand or product fails short of expectations. Some are unhappy with customer service, perhaps because of a conflict that was inadequately resolved. Some customers relocate and are no longer in the trading area. Before an organisation can establish an effective win-back strategy, it needs to understand why a customer is no longer loyal.
If the CRM system does not identify a reason for losing high-value customers, a common first activity is to contact the customers and verify that they are indeed inactive or lost customers. If they indicate that they are, some attempt should be made to learn why the relationship has soured.
When an employee quits a job, it is common for the departing employee to go through an exit interview. Exit interviews offer a final chance to gather information from personnel that otherwise might be difficult or impossible to obtain. Often bombshells of unexpected information are disclosed.
Exit interview
The customer exit interview is an attempt to ask, “Why are you leaving us?” When a cable TV subscriber cancels service, the exit interview may be a single question. However, in business-to-business markets, a senior executive may visit the lost customer a month or two after the relationship has been terminated. The interviewer explains that the purpose of the interview is to learn, rather than to appeal for the return of the business. Although the executive may indicate that the business would be warmly welcomed back, it should be made clear that the exit interview is not a sales call. The purpose is to listen well. The predetermined questions should seek real reasons for the defection and uncover if there was a particular triggering incident that caused the business to be lost.
Focus groups
Consumer goods companies and providers of consumer services may conduct focus group interviews with lapsed customers. A focus group interview usually involves eight to 12 people, former customers in this case, who are paid a fee to talk with a moderator about the reasons for leaving the company or for failing to purchase from the company.
Focus groups are noted for providing quick results. Companies may also conduct surveys to identify what factors drive customers to defection.
Listening posts
A company can also establish formal listening posts on the frontline to learn what customers are thinking. Customer-contact /frontline personnel, who have direct communication with customers, are in a unique position to gauge customer response and to learn why customers terminate their business with a company. In their day-to-day activities, the sales representatives, cashiers and customer service employees hear about the problems customers are having. It is important that frontline employees at listening posts keep some record of problems and complaints and that these records are available in the CRM system to trigger improvements.
Other listening posts are designed to solicit customers’ comments in their own words. Suggestion boxes and free-form comment boxes on websites are examples.
We will continue next week with how to re-contact lapsed customers and provide a reactivation offer.
(Lionel Wijesiri, a corporate director with over 25 years’ senior managerial experience, can be contacted at lionwije@live.com)
