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Value Creation: CEOs Must Tip the Balance Towards Retention 

Gautam Mahajan | Sep 15, 2017 267 views No Comments

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Curt Fowler wrote in the Moultrie Observer on Driving Growth through Customer Excellence. He quoted HBR in Zero Defections stating that a 5% increase in Customer retention can increase profits up to 75%. In retail, they find a 1% increase in retained customers can increase revenue by 10%. Gartner estimated that 80% of your future revenues will come from just 20% of your existing customers.

Below is a chart showing just this:

gm_profit

Very impressive, won’t you say? And if you were the CEO of or on the Board of companies wouldn’t you want to retain more Customers? Wouldn’t you make it your strategy? Wouldn’t you want to tip the balance in your favour?

So we should be hearing great success stories, great increase in profits. But we don’t hear these stories. Why?

Start by answering these questions:

1. Are HBR, Customer Value Foundation and Forrester and all the experts wrong? Y/N

2. Is this data overstated? Y/N

3. The CEOs and others don’t believe these numbers Y/N

4. Or they do, but their training of focusing on shareholder returns, cutting costs, increasing efficiency and traditional ways of doing the done thing, prevents them from making a big change? Y/N



5. Or they do not know how to make the change? Y/N

6. They are happy with the status quo Y/N

7. They are balancing the focus on various stakeholders in favour of the owners Y/N

8. Or the change consultants are focusing on efficiency and systems while focusing on the Customer experience etc. and not the mind-set and culture that need to be changed. Or CEOs don’t think culture is their baby? Y/N

I truly would like to understand WHY? I’d like the reader to help. How many Yesses did you click? I bet there are fewer N (nay) answers.

So what really happens? In a given market, companies in the competitive mix are all losing and gaining customers. They report the customers they gain and not the customers they lose. The great balancing act: market share and retention remain static, and yet customers are gained. A wonderful game, as if all competitors are happy no one is tipping the balance.

Examples

As an example, in India prepaid cell phone Customers defect at an alarming rate of 30 to 50%. Yet market shares are static as those customers one company loses are made up as new customers coming in from competitor’s customer losses.

Another example of companies not focusing on retention is Tata AIG. I tried to re-new my home policy, but could not do so on line. I sent them an e-mail as suggested on their website. After 2 days there was a response that someone would get back to me. After another 2 days I got a message to pay within 3 hours on the payment portal they had sent in the mail with a link (this was at 6pm). I paid a week ago, but there is no response from the company. Doesn’t it appear that they are not interested in retention? (I always say retention is like farming, and acquiring new customers is akin to hunting. Hunting is more exciting, farming more boring. Learn to farm to retain customers. Make it interesting for yourself and your customers).

We need disruptors, and great CEOs to tackle this, to not only understand the opportunity but put into action the balance tipping strategies: build a customer strategy, change the mind-set, and out strip competition.

I would choose Amazon, AirBnB, Costco, WholeFoods, Zappos among others. Down the list would be United Air. You can see that some of the leaders are also disruptors and have built their businesses around the customer. United, on the other hand does not seem to want to do so.

Brand Keys’ 2015 Customer Loyalty Engagement Index® (CLEI) Ratings are based on a brand’s ability to meet customers’ ever-growing expectations better than the competition. That means a focus on the Customer by the company and the CEO. Leaders are:

Apple, AT&T, Hyundai, Ford, Avis, Domino’s, Dunkin’, Google, Konica Minolta, Discover and the NFL maintained their #1 category positions. Brands that were rated #1 in their categories for the first time included Air Canada, Facebook, Kellogg’s Nutri-Grain Breakfast Bars, Chipotle, Exxon Mobile, Nationwide, and Travelocity.

CEO Must Lead

What does this tell us? Companies, who are on the top and want to keep retaining customers, work with a strategy and a culture to achieve just this. The CEO is motivated to retain customers. The newer companies on the list were able to reach the number one loyalty slot by focusing on the customer, giving him what he wanted and making him feel cared for.

Other companies improving retention did so by better customer engagement, better communications, and include High Ridge in packaged goods, Hilton, insurance companies such as Aetna, MetLife and Cigna, and brands like Nike. They focus on what customers want, how they want to be communicated with, convenience, personalisation, a comfortable customer journey, and offering choice to customers.

So you can see that the winners learn to focus on the customer, and retain more customers and lose fewer customers. They tipped the balance in their favour.

Can you tip the balance today? Can you be the Value Creator for your Customer, and avoid value destruction. Can you make this a core task?

Come, let us win! Win the Customer and reap the benefits.

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