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 a for a new customer.
Some firms may feel that the profitability deficit can be overcome by merely recruiting a new customer; and this belief contributes to a discontinuity of relationship with former customers. But, the reality is that 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.
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 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.
We have developed specialized research techniques to help companies recognize both the challenges associated with customer risk and the potential value of re-acquired former customers, as well as attractive potential customers. In one 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; however there were four key negative drivers – 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) of what was driving churn behavior out of all the reasons given for their defection
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.
Extensive research has demonstrated that reacquired former customers can generate up to ten times the financial return of even the most attractive prospects who are newly converted as first-time customers. Companies, in sum, would be wise to maintain relationships with, and pay more marketing attention to, the defected customer.
