Number 23: Summer 2003

 

 

Forget About those Lost Customers—And Feel Good About It

By Michael King

Editor's comment: This article addresses the subject of customer value. Too often companies are focused on attracting or retaining any customers. However, the profitability of different customers varies and it makes far more sense to focus your marketing activities on those who deliver your profits not those who cause your losses.

Independent of the business or industry sector, executives are in a constant search for ways to increase shareholder value and optimize profits. In the wake of the recent corporate scandals and stock market downturn stockholders are demanding more accountability and diligent analysis of proposed future business activities. This article discusses a methodology consisting of seven steps for analyzing value creation and optimizing profits as a means to identify and support a winning business strategy. This method details a systematic way of analyzing business opportunities. Each step is discussed further here.  

When it comes to profitability, is it essential to endlessly analyze and understand your "lost" customers—and to devise a foolproof plan to win them back? If the question were posed in the past two or three years, most marketing professionals would answer unequivocally in the affirmative.

Today, I'm not so sure. Consider a recent Rockefeller Foundation study on lost customers, which found that nearly two-thirds of customers decide "for no special reason" not to return to a business. If this is true, what kind of a targeted win-back plan could really bring them back into the fold?   

In today's environment, it's better business to focus on retention plans that ensure your best customers remain happy and loyal, especially that desirable, high-value customer who, according to a 2000 Arthur Anderson retail study, is worth to your business over his or her lifetime the equivalent to that of 19.5 average-value customers.  

The strategy to leave behind lost customers might sound scandalous to some business owners. But the reality is that high-value customers provide business owners the highest return on their marketing dollars: they buy higher margin merchandise again and again, they spend more than the occasional drop-in customer, and they tend to spread the word to friends. It makes sense to cater to this group, and forget about winning back the strays.

The secret to retaining high-value customers, once identified, can be tracked through a specific set of "touch points" that occur during each phase of the customer life cycle—and how the customer perceives and responds to these touch points. The touch points should be analyzed from both a customer’s point of view (quality of shopping experience) and a company’s point of view (transactional information). Combined, the resulting information (more than data) helps a business develop a market plan for its highest value customers, as well as a plan for moving less valuable customers up the value chain.

For our purpose, we’ve categorized individual customer touch points into five phases:

Attract Phase:  How did you draw this customer into your business? In the retail department store arena, for instance, high-value customers might be more attracted to a particular store by a charity event such as a fashion show or a movie premier than by advance-mail notice of a sale or newspaper coupons. In insurance, high-value customers might become aware of and develop a preference for a particular company’s policies due to a referral from their CPA or CFP. 

Assist:  As a general rule, high-value customers are influenced by personalized, over-the-top service that indicates an intimate knowledge of their preferences and saves them time. Again, in the retail arena, this might include a personal-shopper service such as that offered in Nordstrom. High-value customers are less impressed with impersonal outreach such as mass e-mails or even in-store kiosks. However, high-value customers are typically responsive to other special offers such as premiums or discounts as long as the offers are communicated via personal communications as described above.  

Purchase: Customized transaction services that allow customers to save time, such as "frequent shopper" check-out lines in retail environments or special check-in lines at airports, are preferred by high-value customers across all industries. The operational process should be designed to appeal to these customers, from the purchase itself, to the receipt and even the invoicing. In telecom, high-value wireless customers have been found to prefer having their phones personally delivered to them – ready to use, with their favorite ring tone and their frequently used numbers.  

Service:  It's a no-brainer that high-value customers expect individual attention from the companies and brands they support. Again, in the retail arena, same-day alterations or the willingness of a sales associate to call around for a certain size are important to high-value customers. Twenty-four hour service and liberal return policies are not. In the insurance industry, low-value customers were found to demand personal and time-consuming assistance from agents while high-value customers wanted detailed information about policies and services. The solution? Direct the lowest value customers to a dedicated interactive Web site, and use the time saved by service reps to develop in-depth documents for high-value customers.  

Retain:  What is important to high-value customers? The answer will sometimes surprise you. Ironically, in the retail sector we found valet parking is most popular among the lowest-value customers. In wireless, high-value customers are more interested in the latest and greatest phone technology than in earning points from a loyalty program. Here, customers will readily switch to the competition to upgrade their phones at little or no cost to them; retaining these customers means offering a special upgrade program on their phones every 18 to 24 months.   

By focusing on retaining just five percent of high-value customers, statistics show a business can boost its profits by 95 percent or more. And the cost of retaining five good customers costs the same as it does to win back one lost customer. 

So let's stop drumming up creative new ways of winning back lost, many falling into low-value category, customers and start focusing on identifying and retaining those worth keeping.    

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