Main Story: It pays to keep your customer satisfied! |
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It’s generally agreed in business today that it costs a company more to go out and get a new customer than it does to keep an existing one. How much more is hard to pin down, but you’ve seen articles quoting the figure as anywhere from 3 to 12 times as much. So say it costs you $600 to get a new customer. Theoretically you could earn new business from an existing customer by spending just $50 to $200, a difference that could really have a positive impact on your bottom line. |
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Actual numbers vary by industry, and every savvy company president or sales VP attempts to have a good handle on how much his or her company spends mining new business. But whether your customers are retail or business-to-business, whether you deal in services or products, the significance of maintaining customer loyalty remains the same.
Why you lose customers
Author and speaker George R. Walther
in his book, "Upside Down Marketing," (McGraw
Hill, 1994), talks about why customers leave suppliers in business relationships.
Nearly 70% of the time, it’s because they encounter indifference
from their suppliers.
Walther’s six reasons why customers leave a business relationship are:
| • 1% die; | |
| • 3% move away; | |
| • 5% are lured into new relationships with competitive suppliers with persistent and persuasive sales reps; | |
| • 9% leave for better pricing or terms; | |
| • 14% leave because of dissatisfaction with the product; and | |
| • 68% leave because of perceived indifference. |
So more often you lose a customer not for something you did, but for something you didn’t do.
Additional reasons for customer attrition noted in other studies include:
| • You fail to resolve problems and complaints. | |
| • You’re hard to do business with - frustrating voice mail system; slow, difficult web site; long wait times and/or failure to return calls. | |
| • Your reps give poor follow-through. | |
| • Your customer perceives your customer service people are not listening, or are arrogant, condescending, apathetic or rude. | |
| • Your company and its representatives show an unprofessional image. | |
| • You suffer from poor product quality. | |
| • You aren’t ready to respond to a big sales promotion. |
So how do you improve customer retention?
Jim Berkowitz of CRMMastery.com suggests you find out why customers
stay and why they don’t, then focus your efforts on keeping your most
profitable customers “super-satisfied.”
Secondly, you need to find out which customers have the most potential
for growth and develop ways to realize additional business from these
customers. Some customer characteristics that influence profitability
include:
| Less Profitable Customers | More Profitable Customers | |
| 1. Place a lot of SMALL orders | 1. Place fewer LARGE orders | |
| 2. Order LOW margin products | 2. Order HIGH margin products | |
| 3. Require LARGE discounts | 3. Require LITTLE discounting | |
| 4. FREQUENTLY change orders | 4. RARELY make order changes | |
| 5. Require A LOT of support | 5. Require LITTLE support | |
| 6. Submit MANY returns | 6. Submit FEW returns | |
| 7. Pay SLOWLY | 7. Pay ON TIME |
A good strategy to encourage customer loyalty is to maintain a clean and viable eDatabase so you can use the Internet to deliver customer support at low cost, in a customer-friendly way, as well as keep in regular touch with your customers and offer additional benefits to your best ones.
The long-term benefit
The longer you keep a customer, the less impact your original acquisition
cost will have, so the real benefit comes in increasing customer longevity.
An article
from eDealerAlert notes that loyal customers provide new customer referrals,
increased purchases and additional revenue. They tolerate price premiums
and need less education about products, operations, etc. In the end,
customers
who stay around longer make great references when you are out getting new
customers. All this can result in reduced operating costs.
In our 25 years of business experience, MillerWhite has found plenty of evidence to confirm the cost-effectiveness of keeping your current customers satisfied. One way to do this is to learn as much as possible about both your current and your potential customers. MillerWhite can conduct customer surveys, which yield results that will help your business get a better handle on what you need to do to position your services and/or products to your customers and grow new business, as well as implement an eStrategy program.