Boost your Profits through Customer Retention

Posted on 15 September 2010

How often do we hear of businesses focusing almost entirely on new sales rather than looking after their existing customers? Are you guilty of it in your business? When the going gets tough do you cut prices and spend a lot of time and effort on getting new (and less profitable) customers?

You may have come across this oft quoted study, attributed to, variously, The American Society for Quality, the US Chambers of Commerce and a book called "Lessons from the Field" (Howard Feiertag and John Hogan).

This gives the following reasons for customers leaving:

Death or moving away 4%
The influence of friends and relatives 5%
Competitor marketing and special offers 9%
Dissatisfaction with product or price 14%
Perceived indifference of the supplier 68%

Reflect on that - more than 2 out of every 3 lost customers do so because they believe you don't care!

But is it as simple as that? A study by RightNow Technologies says…

73% of customers leave because of poor customer service but the supplier thinks that only 21% leave because of customer service.
The supplier thinks 48% leave because of price when in fact only 25% do so.

In another study Mercer Management Consulting found that for a selection of retail outlets, only 15% to 30% of customers are price sensitive - that is, they might change supplier for a better price.

So retaining customers is not (usually) about price - it's about letting the customer know you care.

"So if you love your customers can you charge what you like?"

No. You have to be competitive in your market - but superior customer care and marketing mix (USP, positioning and so forth) means you get to keep most of your customers and still charge a premium.

Low prices won't keep customers if they think you are indifferent to them. Worse, using low prices attracts disloyal customers - remember why they come to you in the first place!

The worst strategy of all is using low prices to make up for the fact that you and your staff really don't care…

"It's really difficult and expensive to get all my staff to provide great customer service"

It might seem so to start with - but the rewards are huge…

According to a study by the global business consulting firm Baines Consulting, a 5% increase in customer retention can increase a company's profitability by 75%.
Reichheld and Sasser reported that when MBNA America reduced its 10% defection rate to 5% their profits rose by 125%.

The other statistic that you need to reflect on is that it costs anywhere from 3 to 20 times more to gain a new customer than to look after your existing ones… sounds like a bit of a "no-brainer" to me!

One way of looking at it is that you need to do everything you can to move your good clients and customers up the Ladder of Customer Loyalty. Imagine a ladder with different types of customer on each. Let's start sat the bottom…

On the bottom step: Suspects - the market place - they probably don't even know about you… but there are a lot of them!
If you make contact with them in some way through your marketing, they become Prospects… but still not customers!
One step further and they take the plunge and become Testers - they make a purchase, without any real commitment or expectation. This is your first chance to capture them for the long term - how good will their customer service experience be?
If they like what you give them they will come back - become more comfortable with buying from you - only now can you really call them Customers!
If you look after them, they will enjoy using your services or buying your product and that experience turns them into Regulars.
But you can go further - a lot further! At this stage, the customer is still reactive - they buy from you because of the good experience that they've had - great product or service, hassle free dealing and caring customer care from you and your team - they become an Advocate of your business. If asked, they will sing your praises to others.
The final step is when your customer is so delighted and satisfied with your service that they go around acting as your unpaid ambassador telling people without prompting how good you are and that they would be mad not to do business with you! These are the Promoters - they are a real asset to your business and they are your most valuable customers.

Recognise them, nurture them - and make absolutely sure that you understand and care for them at all times. It may sound a little soft and fluffy, but in doing so your profits will be enhanced significantly - and there's nothing fluffy about that!

To find out more about how coaching can help deliver Outstanding Customer Service in your business give Ology Coaching a call.

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