As has been understood for decades, every year, the average b2b and b2c company loses 20 to 40 percent of its customers. Today, for on-line companies the rate of customer churn can be significantly higher (and faster). 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 for a new customer, often by multiples.
And, lost revenue is just one of the problems represented by customer turnover. When customers leave, their accumulated goodwill also departs. Each lost customer is a potential ambassador of bad news, possibly even becoming a saboteur and undermining enterprise brand advocacy efforts. Customer loss can also often result in employee cutbacks, impairing culture, productivity, and trust levels inside the organization. People – customers and employees alike – tend to share their negative experiences; and with increasingly viral activity on the Internet. This can damage even the best and most solid business
In our 2001 book, Customer WinBack, my colleague Jill Griffin and I identified former customer recovery as a major, strategic, financial and brand-building opportunity that has gone largely unexploited and untapped. Twenty-plus years later, that’s still the case.
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. Another is that very few companies have examined the brand perception, cultural and employee behavior impact of high customer turnover.
Here, let’s address the reality of winback financial opportunities. Studies have shown that companies will realize a much better chance of winning business from lost customers than from new prospects. Insights and conclusions from this research 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. A key reason is that lost customers had at least a passing awareness and understanding, if not appreciation, of the vendor’s product or service value proposition.
So, with perceived value as both business outcome and brand advocacy goals of winback, what is the most effective way to achieve these results? Companies will often try techniques like subtle, quasi-personalized “We Miss You.” promotions, sometimes accompanied by financial incentives. These are conventional, fairly commoditized approaches; and, because today’s customers are more sophisticated and discriminating, such programs will only re-attract customers that had been ‘bought away’ from other vendors. Even if recovered, these customers could once again be lured away by attractive competitive pricing, thus making them a questionable recovery investment..
For significantly higher, and more strategic, winback results, companies are frequently better served through re-introduction of the product or service value components that drew the desired customers in the first place, in some instances communicating previously unknown elements Here’s an example. A moderately-priced cafeteria-style steakhouse that served both lunch and dinner had seen significantly decreased numbers participating in its customer loyalty program. In particular, lunch customer and sales volume was dramatically down.
When research was conducted with dormant customers, it was discovered that:
a) Many were not aware that the steakhouse chain even served lunch, and
b) Even among those who were aware that the chain served lunch, their perception was that the service would be too slow for the amount of time they had, the menu was too limited, and/or lunch was too expensive.
Rather than just offering discounts, the chain took a two-pronged approach with these dormant customers. In an A/B split test, the A group was sent a promotion explaining that lunch was fast and affordable, offering discount pricing coupons on its key menu items. The B group was sent a promotion with the same introductory information, but showing each menu item, in the form of a coupon, but at regular prices. Perhaps somewhat counterintuitively, the non-discount promotion of the B produced almost twice the winback and lunch revenue. Follow-up research revealed that discounting actually made the menu items seem less attractive, with former customers skeptical about their value.
The lesson here? Customers have become pretty resistant to price promotions, especially where former perceived value has declined or evaporated. For winback, marketers are encouraged to try simpler, more direct communication of customer value. The openness and authenticity can yield more positive outcomes.
Hi Michael: your lead sentence grabbed my attention and didn’t let go: “As has been understood for decades, every year, the average b2b and b2c company loses 20 to 40 percent of its customers.” Wow.
I searched for the statement’s provenance, and didn’t find it. But the idea of an “average b2b and b2c company” troubles me because it is vague. In addition, what defines a “lost” customer? I ask this because customers don’t tick a box that indicates “I’m gone,” or “I’ve taken my business elsewhere.” In my business experience, identifying lost or lapsed customers is a difficult – and often contentious – process for companies. One of my clients sold subscription software services. They did not use the term lost customer in their internal vocabulary. Instead, they used lapsed – an important distinction, which they defined as a company that had not renewed their subscription in over one year. Why not assign the lapsed label immediately? Why not six months? Or 18 months? Or longer? I can’t answer that, but that was how my client defined it. The point is that defining exactly what a lost or lapsed customer is in the first place can be tricky. My advice then, as it is now: any definition is still better than no definition.
Yet, in B2B marketing and sales where I have spent the majority of my career, binary labels as current or lost rarely apply. Instead, customers often vary their spending preferences by having primary, secondary, and tertiary suppliers (and beyond). So it’s far more common for a particular customer’s supplier purchases to escalate or subside than to out-and-out stop. And even rarer for out-and-out stop to be recognized the instant it occurs. As I mentioned, customers intending to reduce or terminate purchases don’t tick discrete boxes indicating their status, they just ghost the sales team, ratchet down their ordering, and possibly stop buying altogether (frequently without obvious rancor or fanfare).
But when purchases stopped, lapsed, reduced, got interrupted, or permanently terminated, there could be a number of reasons: 1) customer’s business needs changed; 2) vendor (my company) no longer served customer’s industry or deliberately chose to discontinue selling to customer; 3) customer went out of business; 4) customer was acquired by another company using different components or operating on different platform; 5) customer chose to cut ties completely, and buy same or similar product from a different supplier.
In all but the last item, my company would not engage in a “win back” because defining a lost customer in the first place is not often straightforward, and not all former customers should be recovered.
Andrew –
I respect your perspectives and comments; however, there is ample evidence for the annual customer churn rates and levels in multiple industries. Here’s just one recent source and set of statistics: https://www.statista.com/statistics/816735/customer-churn-rate-by-industry-us/
Also, ‘churn’ is not difficult to explain. In the short term, such customers might be considered dormant or lapsed. In the longer term, they are tagged as defected/gone, and for multiple potential reasons: 1) supplier’s pricing is too high, 2) supplier’s service and support level is too low, 3) overall perceived value, including tangible/intangible quality, may be better elsewhere, 4) the customer may no longer need the vendor’s product/service, etc.
Winback is not boiling the ocean. It’s quite strategic and selective, targeted to formerly high volume/high profit customers. To regain dormant or churned customers, it must first be identified why their trust and relationship declined and if the connection can be regained. Then, messaging programs can be designed to recover and rebuild trust and confidence.
Michael