What Happens When Companies Lose Customers?

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It has always impressed me that, even as companies focus more on customer risk and stabilization, they aren’t paying more attention to the impact of losing customers in the first place and the financial, and cultural, benefits of winning them back. My colleague, Jill Griffin, and I thought this was important enough, that we wrote an entire book about the back-end of the customer life cycle – Customer WinBack – in 2001. Not a great deal has changed in the customer loss and winback landscape in the past decade, and there are lessons associated with that.

United Parcel Service suffered staggering customer defection as a consequence of their 15 day Teamsters work stoppage in 1997. The result was that, even after their 80,000 drivers were back behind the wheels of their delivery trucks or tractor-trailers, many thousands of UPS workers were laid off. A UPS manager in Arkansas was quoted as saying: “To the degree that our customers come back will dictate whether those jobs come back.”

The UPS loss was a gain for Federal Express, Airborne, RPS, and even the United States Postal Service. They provided services during the strike that made UPS’ customers see the dangers of using a single delivery company to handle its packages and parcels. FedEx, for example, reported expecting to keep as much as 25% of the 850,000 additional packages it delivered each day of the strike.

UPS’ customer loss woes, and the impact on its employees, was a very public display of the consequences of customer turnover. Most customer loss is relatively unseen, but it has been determined that many companies lose between ten and forty percent of their customers each year. Still more customers fall into a level of dormancy, or reduced ‘share of customer’ with their current supplier, moving their business to other companies, thus decreasing the amount they spend with the original supplier. The economic impact on companies, not to mention the crushing moral effect on employees – downsizing, rightsizing, plant closings, layoffs, etc. – are the real effects of customer loss.

Lost jobs and lost profits propelled UPS into an aggressive win-back mode as soon as the strike was settled. Customers began receiving phone calls from UPS officials assuring them that UPS was back in business, apologizing for the inconvenience and pledging that their former reliability had been restored. Drivers dropping by for pick-ups were cheerful and confident, and they reinforced that things were back to normal. UPS issued letters of apology and discount certificates to customers to further help heal the wounds and rebuild trust. And face-to-face meetings with customers large and small were initiated by UPS—-all with the goal of getting the business back.

These win-back initiatives formed an important bridge of recovery back to the customer. And it worked. The actions, coupled with the company’s cost-effective services, continuing advances in shipping technology, and the dramatic growth of on-line shopping, enabled UPS to reinstate many laid off workers while increasing its profits a remarkable 87% in the year following the devastating strike.

UPS is hardly an isolated case. Protecting customer relationships in these uncertain times is a fact of life for every business. We’ve entered a new era of customer defection where customer churn is reaching epidemic proportions, and wrecking businesses and lives along the way. It’s time to truly understand the consequences of customer loss and, in turn, apply proven win-back strategies to regain these valuable customers.

Nowhere are the effects of customer defection more visible than in the world of Internet commerce, where the opportunities for customer loss occur at warp speed. E-tailers and web service companies are spending incredible sums of money to draw customers to their sites. Because of this, relatively few of these companies, including many well-established sites, have turned a profit. Customer loss (and lack of recovery) is a key contributor. E-customers have proven to be a high-maintenance lot. They want value, and they want it fast. These customers show little tolerance for poor web architecture and navigation, outdated information or insufficient customer service. Expectations for user experience are very high, and rising rapidly.

Internet customers, to be sure, have some of the same value delivery needs as bricks and mortar customers; but, they are also different from bricks and mortar customers in many important and loyalty-leveraging respects. They are more demanding and require much more contact. They require multi-layer benefits, in the form of personalization, choice, customized experience, privacy, current information, competitive pricing, and feedback. They want partnering and networking opportunities. When site download times are too long, order placement mechanisms too cumbersome, order acknowledgment too slow, or customer service too overwhelmed to respond in a timely fashion, on-line shoppers will quickly abandon their purchase transaction, or not repeat it. Further, they are highly unlikely to return to a site which has caused negative experiences.

What’s more, the Internet also serves as a high speed information pathway for negative customer opinion. If unhappy customers in the bricks-and-mortar world usually express their displeasure to between two and twenty people, on the Internet, angry former customers have the opportunity to impact thousands (perhaps millions, as in the cases of ‘United Breaks Guitars’ and the FedEx delivery guy tossing a computer monitor over a fence, when YouTube comes into play) more.

Consider this: In 1996, James Riley, a Northwest Airlines customer, became angry when a rerouted flight returned him to Michigan, five hours late and without his luggage. A year later, it took him eight months and about $2,000 to recoup about $400 from Northwest for damaged luggage on another flight. Finally, in 1998, Northwest baggage handlers broke the screen on his daughter’s expensive computer; and the airline did little to compensate or help him. He’d had enough. Not content to be just a defected Northwest customer, Riley created www.northworstair.com, a web site which provides other passengers with a forum for airing their complaints. The site also carries ‘horror stories’ about Northwest, such as the one where a pilot delayed a flight in December, 1999, while he left the plane and went back into the airport to find something to eat.

Riley’s site is not at all unique. There are scores of sites offering similar negative messages about companies in many industries, and giving customers, and even former employees, a place to expressing grievances. It’s a new form of angry former customer sabotage which adds to the economic and cultural effect of customer turnover. Part of their charter is to help consumers find value, and, like us, they understand that customers will provide loyalty in exchange for value.

They also recognize that the absence of value drives customer loss, and that insufficient or ineffective feedback handling processes can create high turnover. These sites often state something like: “The Internet is the most consumer-centric medium in history – and we will help consumers use it to their greatest personal advantage. We will increase the influence of individuals through networks of millions. We will raise the stakes for companies to respond. We will require companies to respect consumers’ choice, privacy and time, and will expose those that do not.” This may sound a bit like Orwell’s Animal Farm, but it does acknowledge the power of negative, as well as positive, customer feedback.

Some businesses seem minimally concerned about losing a customer; but the only thing worse than the loss of high value customers is neglecting the opportunity to win them back. When customer lifetime value is interrupted, it often makes both economic and cultural sense for the company to make an active, serious effort to recover them. This is true for both business-to-business and consumer products or services.

So how does a company defend itself against the perils of customer loss? The best plan, of course, is a proactive one that anticipates customer defection and works hard to lessen the risk. Companies need defection-proofing strategies, including intelligent gathering and application of customer data, the use of customer teams, creating staff loyalty, and the basic strategy of targeting the right kind of customers in the first place.

But in today’s hyper-competitive marketplace, no retention program is complete without a save and win-back component. There is mounting evidence that the probability of win-back success and the benefits surrounding it far outweigh the investment costs. Yet, most companies are largely unprepared to address this opportunity. It’s costing them dearly, and even driving them out of business.

Building and sustaining customer loyalty is harder than ever before. Now is the time to put in place specific strategies and tools for winning back lost customers, saving customers on the brink of defection, and making your company defection-proof.

5 COMMENTS

  1. Ian –

    I’ve focused on the dynamics of each component of the customer life cycle for a considerable period of time – even developing and facilitating a multi-day workshop for the Direct Marketing Association for several years. The back end of the life cycle, i.e. risk, loss, and recovery, is frequently minimized by organizations, but may be the most important, and profitable, stage. Thanks for your comment.

  2. Adele –

    Thanks for sending along the two blog posts. Very informative. In 2001, Customer WinBack (Jossey-Bass), a book I co-wrote with my colleague Jill Griffin, was published. It addressed issues and opportunities associated with the back end of the customer life cycle: risk, stabilization, loss, and recovery. In the succeeding 10+ years, we have seen no other books specifically dedicated to this important, and often neglected, subject. Regards.

    Michael

  3. Michael

    I think that social media has changed the landscape totally since 2001.

    Winback strategies have to include a social media component and use new web techniques.

    For example, BP used videos to explain what is was doing during the Gulf Oil Spill. http://bit.ly/9Jn3Iy. But if you look at the web pages where these videos were posted, they didn’t have Search Engine Optimization included (they had no keywords) so they were not picked up by the search engines.

    So while the videos themselves were excellent (good content and delivery) the execution of the publicity of those videos was flawed. The public couldn’t find them easily. They didn’t link to each other. You couldn’t embed them in a blog post like you can many other videos.

    Customer winback strategies and many other aspects of marketing are far more complicated now.

    Adele

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