1) Many companies focus more on acquiring new customers than retaining existing ones or recovering former customers, despite the higher potential value of existing and former high-value customers.
2) Targeted customer research can help companies identify high-value prospects, at-risk existing customers, and attractive former customers to acquire, retain, and recover in a more cost-effective way.
3) Understanding what represents value for prospective customers and matching offerings to their needs is important for acquisition, yet often under-researched. Recovering attractive former customers through targeted win-back programs can be a major strategic opportunity.
2. Prospecting sales terms like‘convert’,‘steal’,‘capture’, and‘conquer’,
popularized among automotive companies, are frequently used to identify the
process of bringing in new customers, especially those won from other suppliers
and vendors. As marketing consultant and author, RobertTucker has stated,
“Companies are often so concerned about attracting new customers that they
denigrate their unique value proposition to loyal customers.” They focus instead
on chasing down the next sale, competing principally on introductory offer or
price, and compensating employees more for generating new accounts than for
keeping existing customers happy, engaged and loyal.
A multi-industry continental Europe study by ProfessorAdrian Payne (University
of New SouthWales, and formerly of Cranfield University in the U.K.) showed
that 80% of companies spend too much of their marketing budget on customer
acquisition. He calls these companiesAcquirers. Parenthetically, his study found
that 10% spend too much on retention; another 10%, Profit Maximizers, seem
to get the mix right. Why does this overemphasis and preoccupation happen?
Professor Payne cites five reasons:
1. Management believes that existing customers will be retained; therefore
the company needs to focus on acquisition.
2. Companies experience high churn rates: leaky bucket syndrome.
3. Customer acquisition is reported regularly to analysts, shareholders and
senior management; but churn rate may or may not be reported.
4. The lifetime value profit impact of lost customers is not reviewed.
5. Incentive compensation is often based on acquisition, not retention.
The acquisition mindset of senior management and marketers is not likely
to change anytime soon.We can preach and preach about the advantages
represented in having a balanced, profit maximization approach to customer
management and optimizing value over the life cycle. But as researchers
and consultants, we had better be prepared to help acquisition-oriented and
acquisition-obsessed companies in the real world.
Truths and fallacies in attracting new customers
3. The drive to acquire customers often leads to twin challenges: a) superficial
approaches to customer targeting and qualifying, and b) limited understanding of
factors that impact perceived value and behavior for the prospect that has yet to
make an initial purchase.
Let us deal with the second challenge first: gaining insight into what represents
value for prospective customers, and matching that to what the organization
offers.While there is evidence that increasing attention is being given to learning
what leverages customer retention, customer loyalty behavior, positive customer
relationships, and even customer risk and loss, there is relatively little research
around what causes a prospect to become, or not become, a first-time customer.
This is a particularly important, valuable, and often underapplied, element of
customer experience and customer value research.
There are three main applications of customer management systems: selling
and sales force automation, marketing/communications and customer service.
Implementation relies on integration of multiple sales and communication
channels. However, for prospective customers the system is typically built on
outbound contact and streamlined lead management.The enterprise view of
customer management is focused on helping sales groups generate customers,
and providing seamless support and service once customers are on board.
Infrequently, companies attempt to identify 1) what prospective customers really
want or need, or 2) how well companies themselves are positioned to address
and meet those wants and needs.
As a result, customer management systems tend to be less effective at the front
end of a customer’s life cycle, the key first steps of the customer relationship
journey. Process-oriented companies focus on creating benefit by keeping
customers, optimizing their purchases over time and stemming rates of defection
or recovering lost customers.They rarely give enough attention to pre-purchase
processes or value creation.
Everyone can repeat stories of being ignored, treated poorly or given incorrect
or insufficient information or service by badly trained, indifferent sales and
service staff, thus preventing them from making an initial purchase. Unreturned
phone calls, non-response to email messages, or poorly designed web sites
are also barriers to initial purchase.These are just some of the pre-customer
process breakdowns in both b-to-b and b-to-c worlds that customer management
systems could address but rarely do.
Customer management systems neglect valuation of prospects or
matching the value proposition with customer needs
4. The other prospect challenge is that of customer suitability. Stating that all
customers are not created equal is hardly an oversimplification. Like the pigs
in Orwell’s Animal Farm, some customers are (much) more equal than others.
No company has unlimited resources to service or support all their customers
equally. Repeat buying power is everything when prospecting for potential
customers. Some customers are worth a great deal; some may become more
valuable over time; some may be valuable for a brief period but may be easily
lured away; some are only seeking a price which would be disadvantageous for
the supplier; and some are never likely to become valuable.
At minimum, companies need to segment their customers to determine how
long a customer will remain with them, how much revenue and profitability each
customer will contribute, how much and what kind of services the customer
should receive, and what efforts will be needed to keep them whether they are
new, at risk or already lost.Also, if a company is changing product or service
focus, i.e. beginning a new communication or frequency marketing program,
decisions have to be made about which customers they want to retain.
Companies are becoming smarter about keeping the customers they want or
firing less attractive customers through stepped-down or added-charge services.
Now they have to invest more up-front to learn which potential customers will
be the most valuable over time.This goes beyond segmentation. It is almost pre-
segmentation.
In an industry like gaming where the level of customer migration is very high,
it is imperative that casinos not only keep the players they want but target the
right customers in the first place.They do this in a number of ways, including
geo-demographic profiling. Many casinos make an extra effort to get back the
high rollers they have lost. Customer research can be an essential element to the
acquisition plan.
Other industries are beginning to learn how to profile and focus on the best
prospects. In the retail automotive industry, potentially loyal new customers
take less time making their purchase decisions, consider fewer dealerships, are
less price-driven, and rely less on magazine articles and other media and more
on previous experience and personal word-of-mouth. Dealers and automotive
companies would be well advised to learn this about prospective customers at an
early point in the sales process.
Who is a valuable prospect?
5. Advanced companies have begun to understand the financial and other values of
customer research, seeking customers who:
• Need less direct motivation (incentive) or indirect motivation (promise
of support and committed resources) to purchase;
• Have demonstrated more resistance to claims and attempts to lure them
away;
• Are less price-sensitive, and place more value on intangible aspects of
delivery;
• Are more accepting of occasional value performance lapses and are less
likely to accept alternatives if their brand/service is unavailable;
• Demonstrate more positive attitudes about their brand, and actively and
positively communicate about their preferred brand or supplier.
Similar attention should be paid to undesirable prospects. Companies should
make an effort to identify potential customers who may be an inappropriate
match.They may need too much service, have a history of being transitory
or require unreasonable price concessions. Pursuing customers with these
characteristics is a waste of resources.
In all the haste to bring in customers, companies often forget to court the right
customers: those who represent the best long-term revenue potential, who will
not overtax the company’s customer service and support structure, and are
most likely to stay with the company.As the key means of exercising discipline,
acquisition targeting and research certainly merit at least as much emphasis as
the preoccupation with identifying and converting prospects, and leveraging
employee behavior to drive customer loyalty and business outcomes.
Every year, the average company loses 20 to 40 percent of its customers; and,
for on-line companies the rate of customer churn can be significantly higher.
When a high value repeat or long-time customer defects, the negative effect on
profit is substantial. The profit contribution of these mature customers is often
dramatically higher than for a new customer.
Some firms may feel that the profitability deficit can be overcome by merely
recruiting a new customer. But these high-value customers cannot be easily
replaced. In most categories of business, one-third of customers account for
two-thirds, or more, of sales volume. So, these customers are critical not only
in terms of their profit contribution, but also because of their relatively small
number.
Lost revenue isn’t the only problem represented by customer turnover. When
customers leave, their accumulated goodwill also departs. Each lost customer
can, and often does, become an ambassador of bad news. People tend to share
their negative experiences – offline, and increasingly on the Internet – and
this represents well-documented and potentially strong‘badvocacy’ impact on
customer decision-making behavior and can serve to undermine even the best
business reputation and image.
Lost customers can be highly attractive prospects, too!
6. Studies have found that one of several factors can drive defection: unsurfaced
and unhandled complaints, or those that are handled poorly or slowly; better
value offered by competition; or what we call‘benign neglect’, simply taking the
customer for granted, often coupled with broken promises. Any of these trust-
impairing conditions make it easy for customers to look for better performance
elsewhere, and many do.
In today’s highly competitive marketplace, no customer experience or customer
loyalty program is completely successful; and despite a company’s best efforts,
valuable customers will be lost. No question, the best approach for keeping
that from happening is a proactive, anticipatory relationship with customers and
understanding, and acting, when they are believed to be at risk. But, these are
basic actions; and no company can afford to stop there. Retention and loyalty
efforts must be backed up with win-back programs that can return high-value
customers to their businesses.
Market Probe has developed specialized research techniques to help companies
recognize both the challenges associated with customer risk, the potential value
of re-acquired former customers, as well as attractive potential customers. In
the following business-to-business example, our unique‘swing voter’ analysis
approach identified attractive price competitiveness as the principal reason
former customers had done business with a supplier (blue bars); however there
were four key negative drivers (red bars) – usefulness of product delivery
method, billing accuracy (a surrogate for lack of trust), corporate reputation
(also a trust issue), and understanding the customer’s data information needs -
which, combined, actually represented 78% (with some overlap due to multiple
low scores) driving churn behavior of the reasons they defected:
7. The company was then able to target attractive former customers, and key
on rebuilding the value proposition around both price and other elements of
delivery seen as deficient.
As noted, another issue is complaints, those that are identified (and poorly
resolved) and those that, for a variety of reasons, are never surfaced in the first
place. In the business banking example below, it was clear that both unexpressed
and ineffectively concluded issues were hurting key performance metrics.
We’ve identified customer win-back as a major, strategic opportunity that has
gone largely unexploited. Why haven’t more companies made the effort to
recover these attractive customers? One of the reasons is that they haven’t
examined the potential revenue represented by these customers. A major
study has shown that companies have a much better chance of winning business
from lost customers than from new prospects. Research from that study shows
that there is a 20 to 40% probability of successfully selling to lost customers
compared to only a 5 to 20% probability of making a sale to new prospects.
One continuity book club marketer, for instance, documented a net return on
investment from re-contacting the expired list of their best customers that was
nearly ten times greater than the return from their most reliable prospect list.
Another reason for not trying to win-back customers, beyond the effort
required, is that companies don’t see any residual benefit for their organizations.
Companies conducting recovery programs, however, report that contact and
dialogue with these former customers has helped identify ways to improve
product and service delivery, correct miscommunications, and obtain feedback
on new products and services. Additionally, analysis of win-back efforts has
enabled these companies to develop customer attrition, or at-risk profiles,
pinpointing those customers most vulnerable to prospective defection and thus
most in need of retention and‘save’ initiatives.
Complaint? Expressed? Handled? RecommendContinue to
use
No - 55%
Yes - 45%
Yes - 60%
Positive -
55%
Neutral -
25%
Negative -
20%
Yes - 40%
82%
87%
53%
21%
62%
55%
89%
91%
54%
17%
66%
61%
8. Despite this growing validation, customer win-back, like prospect research,
remains an underutilized, and often neglected, opportunity for business
outcome-centric insights; but, we see these as a next logical frontier in customer
research application and growth of customer loyalty and customer experience
management.
Further, although contacting former customers is no one’s idea of fun, tracking
enables accountability to be assigned and improvement priorities to be
set. Recovery, or win-back, research is where the enterprise will find those
customers who made the decision to leave; and tracking the root causes of
customer problems has both valuable learning and profit opportunities.