As I write this, I am recovering in my hotel room from an early-morning run several times up and down each of the four different staircases in this hotel, in a foreign city (not going to tell you what city, but it's way far away from the US - virtually opposite side of the world). Something I noticed about this modern hotel is that the number of steps between floors varies with each stairwell! While the floors are all level and have no ups or downs in the hallways, the stairwells themselves each have the same number of steps between each of the principal hotel room floors but that number is 21 steps for one of the stairwells, and 22, 23, or 24 steps for the other three (go figure). I don't know the explanation for this, and truth is I'm not even very interested in it, but when you have to run up and down stairwells in a hotel because it's too early for the fitness center to be open, then you have to occupy your mind somehow.
Nevertheless, this got me thinking about today's consulting assignment. Our firm is meeting later this morning with a large mobile phone carrier regarding their customer retention efforts. If you know anything about this subject, you know that customer retention can be thought of as both proactive and reactive. Proactive efforts are those service improvements, process enhancements, and quality initiatives that encourage loyalty by removing many of the causes of defection. Proactive retention measures could also include a loyalty program of some kind, along with customized service treatments and the like.
Reactive retention efforts, on the other hand, are those policies and practices aimed at intercepting customer defections - either by convincing people not to leave when they contact the firm to disconnect, or by using analytics to detect the kinds of behaviors that normally precede defection, and then actively intervening with a customer contact or offer.
It is the reactive retention efforts that I came to wonder about as I was pondering the irregularities in my hotel's stairwells. The thing is, a good proactive effort is one that arms the customer service agent with a number of different types of offers and communications to deploy for different types of customer situations. And sometimes the only real difference between one situation and the next is the intensity of a customer's desire to leave, and therefore the "price" required to retain. What this means is that - theoretically at least - different customers could communicate with each other about the kinds of "win back" offers they each received, and the result would not be economically helpful to the carrier. On the other hand, not making the "best offer" to a customer at any point in time is clearly flirting with untrustworthy behavior.
What we usually advise clients is that they have to have some objective reason they can cite for making any customer-specific offer - a reason that would allow any other customer who met those particular conditions to receive that offer, also. But this advice only really applies to the kinds of initial offers that are made to a customer in a reactive retention situation. What happens, however, when a customer improves his offer simply through negotiation? When a business customer does this, a contract typically will have a confidentiality clause, so the seller can protect overall pricing with other customers. But this obviously would be difficult to apply to consumer customers, even if you wanted to.
Reason I'm posting this is to see if anyone out there has a view on how to handle this issue. What are the best practices, what are the worst cases, what are the issues? Anyone?
Focusing on price alone is a lazy strategy that usually indicates that you don't understand the range of possible value propositions that motivate your customers. Yes, *some* people are price shoppers. But others are really motivated by friendly staff, enthusiastic service, variety of choices, brand reputation, etc. I used to go out of my way to take Delta flights in the morning because the airline served wonderful hot biscuits with breakfast (not any more, of course). Maybe that was silly, but the fact is that the biscuits actually made a difference in my choices.
The problem is, you have to know what motivates each of your customers, and then figure the ROI of providing that option. That's work. Much easier to haggle over price. Dumb, but much easier...
I agree with shashank, new customers should not be rewarded at the cost of loyal customers. In India, its a chronic problem, where every customer is a good customer, i dont think all customers are good for the company.......some are not even right customers.......Customer retention strategies should continously evolve and should focus on customers who make business sense to retain......
Don,
Here's a spin on an old idea. How about the concept of perceived value (needs based) segmentation - as rational consumers, what we pay is equal to the need after a comparison of substitutes and competitors - and we can nicely fit into segments of where we are on that perceived value spectrum. In other words, different customer segments will perceive the value of a service differently. If Sirius understood an attritiing customer's perceived value segment, potentially by asking a few smart differentiating questions,, they would know which offer would likely have the highest impact and lead with it. This offer should not have an impact on other segments that would pay more, or less for the same service.
The discussion boils down to how customers value a service or product differently, and what it takes for a company to retain them. If the company decides to offer a price that is lower to some customers on an arbitrary basis simply because they threaten to leave, then they don't understand their customer's perceived value segment, and potentially damaging their price/value equation.
If we can understand which segments have what value perception, we can tier offers appropriately. I may pay more for a flight the day before than if I made a reservation last month, but my need is such that I'm willing to do that and I'm in a different perceived value segment. I may also wait in line as they call Platinum members that paid less to board the plane, but I understand that they are also in a different value segment and get more for their money.
Mark: I hear you, but what do you do when customers compare notes, and one figures out that the offer you made to him wasn't as good as the offer you made to someone else, in order to entice them to stay loyal? This is a real problem faced by companies with reactive retention efforts. Yes, both customers were treated individually, but one might have gotten a better deal just because they complained more vociferously, or because they negotiated more. Then what?
I believe we should treat each customer individually and as valued individuals. The moment we start to set a standard response we risk treating them as if we see no real value in their personal circumstance. Wherever we can this therefore means personalising the response, creatively adapting to the given situation.
All customers are different - true? Therefore all responses must reflect this. Comments ?
I agree with some of the comments here especially Colin...our social network and the media we use like facebook and twitter has made it ever so easy to spread the word around. Although I also agree that proactive approach to retain customers may be a more effective way of minimising the impact of taking a last minute 'make or break' decision into saving a customer at an exit point, being in a unique market where there are no contractual obligation for the postpaid services, the question remains unanswered. The scary part to this is... it further complicates matters as the same customer who has been retained via a proactive method may just re-attempt the churn threat either to obtain a better offer or another offer that his/her friend has. At the moment, the only solution that I can think of is to limit the offer to the customer for certain period and ensure that only one or two offers are made in any one year. Also to reduce the destruction of revenue of the organisation, the offers has to be designed in such a way that it changes a customer's behaviour i.e. uplifts usage or encourages a product upgrade. Using CLTV to calculate customer offer could be another way to minimise revenue churn. I would really be glad to hear any cross arguments against my thought here...or any further adds to the solution.
Negotiations need to include both sides doing something of value for the other party. When dealing with consumers it's sometimes possible to get then to agree to do something for you in return for a discount or better terms. Here are some examples:
"In return for this discount, will you tell three of your friends that you use our service?"
"... will you answer a 7 question survey on our customer service so we can improve our quality?"
"... will you subscribe to our monthly tips newsletter?"
"... will you share the video on our home page with three of your friends?"
The key is to obtain their commitment to do something easy that will benefit you. Then, they feel they have earned the discount.
The preference for PROactive retention plicies definitely outways the preference for REactive retention policies.
PROactive policies can be guided and directed in an organized manner, in advance, toward the company's most valuable and profitable customers at a level that is consistent with their lifetime value as a customer.
REactive rentention offers are typically panic, last resort offers based on a broad policy without full knowledge of the client's revenue history or forward potential.
Retention clearly needs to be a senior management focus. It is much less expensive to retain and grow an existing customer than to find a new one. Both activities are required since all sales buckets leak customers, but the focus should be weighted toward proactive retention including all aspects of good quality & service.
Paul Edwards
CEO
FormStore Incorporated
www.formstore.com/digital.pdf
Lets talk about how this type of behaviour makes the customer feel.
1) I was an idiot for paying too much before.
2) Why do they treat me so badly?
3) I'm going to leave anyway because they are ripping me off.
4) I'm going to take all my business away from them because I don't like their business practices.
5) I'm going to threaten to leave all my suppliers and get them to offer me better prices.
6) I'm going to check out the internet to find out what special deals other people got and demand the same.
7) It's too much hassle, I'll get a fully inclusive package from someone else.
8)Are there any companies out there that I can "trust"?
If the above is what actually happens just what did the companies expect would happen when they employed these dubious tactics?
I agree with Ozan - defection is only a symptom. If your retention strategy rests solely on identifying angry customers and giving away goodies, you will soon begin to notice that the investment is not matching the results.
We need to take a step back and look at the overall experience and understand what drives loyalty, and spurs defection. Fred Reichheld always talks about "bad profits" - which are policies instituted by businesses that might yield short term gain, but turns customers off over the long term. We are all familiar with random taxes and charges from our telecom carriers, 2 year contracts, and other actions that make us swear never to come back to that provider ever again. For such a client, my I would begin with a "search and destroy" mission for these bad profits, and worry about the tactical piece later.
On the subject of special discounts and offers for defectors - Don's right to re-examine the efficacy of this approach. With today's social media, there are few secrets a company can keep from the greater body of its customers. Rather than paying for loyalty, perhaps the company can take more of a relationship approach with customers it identifies as "detractors" - reach out proactively, apologize, and listen to their suggestions.
Great comments, Mila and Shashank. Our colleague Ozan Bayulgen had a very interesting point in his presentation to the client today. He said "Customer churn is a symptom, not a disease - kind of like a fever. If it is serious you need to treat it, but the only real cure is to treat the disease itself."
Don,
Such an interesting topic. I can offer a worst-case example. Last week my husband called Sirius to cancel his satellite radio subscription for his business because he mostly relies on his iPod as the source of music for his store. When he told the customer service rep that he called to cancel, without hesitation she offered him a rate of 50 percent off for the year if he agreed to keep his contract.
I happened to mention this to my colleague Liz Glagowski, whose husband coincidentally was also planning to call Sirius the same day to negotiate their radio contracts. When he threatened to cancel, however, he was presented instead with an offer for free Sirius until April (basically two free months) if he agreed to stay with the company.
After Liz and I discussed the two situations, there seemed to be no rhyme or reason for the offers. My husband spends less per year than Liz and her husband do because they have a more indpeth Sirius package, yet my husband was given the better reactive offer.
If a company has to regularly offer better deals to customers at the point of departure there is a need to revise company's proactive customer retention policies.
In India credit card companies often let go late payment fees if a customer refuses to pay and threten to leave. Now what is the point of having a late payment fee policy if you have to forego this fees in 60% of the cases? You only end up penalizing the loyal customers.
The reactive policies must be tightly integrated with proactive policies through a feedback loop.
Customer care reps must be empowered to offer better deals to customer with genuine grievances but at no point they should be given freedom to make it regular occurence. If they do it regularly then its time for you to go to the drawing board again.
Bottomline is reactive retention policies can be used only sporadically.