Every year, the average b2b and b2c 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 repeat or long-time customer defects, the negative effect on profit is substantial. The profit contribution of these mature customers is dramatically higher than a for a new customer.
Some firms may feel that the profitability deficit can be overcome by merely recruiting a new customer. That’s simply wrong-minded; and, though there’s no argument with the importance of customer acquisition, first-time customers are rarely as potentially valuable of those the company had but lost on a voluntary (rather than forced out or dropped) bais. 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, they 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 is a potential ambassador of bad news. People tend to share their negative experiences – and with increasingly viral activity on the Internet – and this can undermine even the best business reputation.
Studies have found that one of several factors can drive defection: unhandled complaints; or those that are handled poorly, incompletely, or slowly; better perceived value offered by competition; or what can best be called ‘benign neglect’, simply taking the customer for granted. Any of these conditions make it easy for customers to look for better performance elsewhere
In today’s highly competitive marketplace, no customer service, experience, or loyalty program is completely successful at keeping all desired customers; 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. But, companies can’t 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.
In our 2001 book Customer WinBack, my colleague Jill Griffin and I identified former customer recovery as a major, strategic and financial 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 their expired member list that was nearly ten times greater than the return from the prospect list.
Another reason for not trying to win back former 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 customer has helped identify ways to improve product and service delivery, correct miscommunication, 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.
Despite this growing validation, as when we first examined this component of the customer life cycle, customer win-back remains an underutilized, and often neglected, opportunity; but, we continue to see it as a logical frontier in the growth of customer loyalty, customer life cycle focus, and customer relationship management.
