Keeping Your Customers – It’s not just about loyalty

Written by mobd  |  05. June 2006

Do you know why you lost your last five customers?

Marketing consultants, me included, have long trumpeted that building loyalty with customers is a basic strategy for retaining long term relationships. Therefore most companies believe that if they do all they can do develop loyalty from their customers they will not lose them. But developing and maintaining loyalty is a tricky proposition in today's hyper-competitive marketplace. Knowing why a customer leaves is as important as knowing why they stay - sometimes even more so, since corrective action can be developed from negative feedback preventing further defection.
A successful strategy for customer retention should include all of the loyalty building tactics (for example, excellent value, preferred pricing, rewards, customer care, etc) and a risk analysis component. A comprehensive customer retention strategy should include a process to identify customers at risk of defecting. I find many companies 'think' they know why customers defect, but in fact often these companies are wrong. The main reason companies cite for losing customers usually relates to price. According to research conducted by Bob Thompson and published on www.crmguru.com, when asked why they defected from a vendor 74% of customers responded that inadequate customer service was the reason. 25% indicated that price was the primary reason for defecting and 8% responded that changing needs was the reason.
This is significant because when companies were asked why they thought customers defected, 49% believed price was the issue, 36% cited changing needs and only 22% thought customer service was the reason.
Why the big perception gap? While there are many reasons I find, in the majority, it is because companies are too focused on the new sales side of the equation and not enough on retaining existing customers. This is especially clear in companies whose compensation plans reward new sales more favorably than customer retention. Many companies also do not think they can identify customers at risk of defecting. This is not necessarily the case, according to marketer Jill Griffen, a loyalty specialist. Griffen believes that all customer account reviews should include five questions to help identify the potential for defection:
1. Is the customer taking longer to approve proposals?
2. Has access to customer senior management decreased?
3. Have plans for future work decreased?
4. Is the customer purchasing less?
5. Is the customer less willing to share data or future plans?

Some or all of these questions can help identify a customer in jeopardy of defecting. Companies should also remember that resources dedicated to customer retention are as vital to future growth as sales. On average it is much costlier to gain new customers than retain existing ones. Recurring customers create the opportunity to develop the loyalty and long term relationship needed to fully realize a customer's lifetime value. So, why did you lose your last five customers?

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