When your customer hasn’t charged anything on his credit card for several billing cycles, what’s the best strategy for keeping him from finally walking out the door? What about the woman who was just approved for your card? Do you apply the same principles to her?
The best customer retention initiative to implement for a specific customer often depends on that customer’s position in the customer life cycle. What’s more, the earlier in the customer life cycle that you execute a customer retention initiative, the more effective and higher the overall ROI of the initiative. So what should you do—and when?
At Genroe, a customer-retention consulting firm, we divide the customer life cycle into four distinct sections. These sections are shown below along with the value, i.e. profit or gross margin that different types of customers contribute to the business at different parts of the cycle.
This is the time when a customer is just starting his or her relationship with your company. The length of time a customer spends in this stage depends on your business, but it is normally anywhere from a few days to a couple of months.
The largest group of customer retention strategies that can be implemented in the “new” stage of the customer lifecycle is “onboarding.” Onboarding is the process of bedding a customer into your organization. It includes ensuring that personal customer data is correct and that customers understand the products they have purchased and how to contact the organization. At Genroe, in the programs we have developed and implemented for our clients, we have proved time and again that customers that are properly onboarded will stay with the company longer and spend more money than other customers.
Onboarding initiatives can be as simple as calling all customers in their first 30 days to confirm contact details and resolving any teething problems that they might be having.
These are your company’s current customers and fall into several groups:
- The ideal customers, who continue to use and grow their use of your products.
- The unhappy customers, who still use your products but are discontented.
- The customers in silent attrition, still have your products but no longer use them actively, such as credit card accounts with little or no spending. They are generally a drag on company value, because you still have to service them, although they add no profit to the business.
Customer retention strategies for existing customers start with classifying each type of customer and then creating appropriate initiatives to change their behavior.
For instance, for customers in silent attrition, you must determine why they are no longer using your product and then determine how to have them start to use your product again. For example, are you their “back of the wallet” card? If so, an initiative might be to target customers with a campaign to increase their use of direct debit orders. Once they have started using the card for regular purchases, they are more likely to use it in day-to-day shopping.
These customers are on the way out. They may still use your product, but they are looking for the exit and actively seeking alternatives. Given time, they will leave.
Your initial challenge in creating retention strategies for Exiting customers is to identify them. One way is to uncover the tell-tail signs that customers considering a move provide to your organization. For instance, if you are a bank, they may make a request for the loan pay-out details. As you uncover these indicators, you should create initiatives to target those customers with a proactive contact.
Where customers purchase multiple products from you, you should also try to understand the order in which customers drop their product relationships when they are exiting, because this can give you another good early warning.
Once you can spot exiting customers, you can create effective customer retention strategies to target those customers.
For instance, if a request for loan pay-out details is an indictor of imminent exit for your customers, you might send all customers requesting such information a special discount offer on new loans. This means you have your best foot forward as they investigate their options.
Putting it simply, these are no longer customers. They have left.
Strategies that are aimed at recapturing customers that have left the organization are generically called winback strategies. This is the most expensive and lowest ROI place to try to implement your customer retention strategies. Mentally, customers have already moved to another organization, and it takes a large inducement to bring them back.
If you choose to execute winback strategies, you will need to carefully manage the level of incentive that your staff can offer to customers. For instance, you will need rules to tailor the incentive level to each specific customer to ensure that the level of inducement is not larger than the future business generated by that customer.
When executing a winback initiative, a good approach might be to send all customers asking to close an account to a specialist team that has the training and access to special offers to try a last-ditch effort to retain the customer.
When you create customer retention initiatives, you will need to justify them based on the return on investment they will generate. This can be easier or harder depending on the position in the customer life cycle. Generally, the later in the life cycle, the easier it is to attribute results to your customer retention initiatives and, therefore, prove a suitable return on investment. However, intervening earlier is less expensive and more effective but harder to prove. Don’t let the difficulty of proving the ROI for early intervention deter you, because it can pay very good returns.