Steps to fixing customer retention issues

Retaining customers and reducing churn has never been more important. Yet rather than addressing the source of the problem, many businesses try to tackle the issue by constantly topping up with new customers to replace those that churn. It’s an expensive and highly inefficient way to approach customer retention at a time when delivering profitable growth is vital.

Causes of customer Churn

The first and perhaps the largest cause of customer churn is actually acquisition, the first part of the customer lifecycle. Many acquisition and business growth strategies are very aggressive, and can easily create customer management problems in the future. Most companies have embraced the use of digital channels as a way of delivering more cost-efficient acquisition, but that alone is not enough.

The current vogue for credit crunch discounts and special offers can actually store up trouble and damage cross sell and up sell opportunities further down the line. Many companies are volume driven, with resultant sales strategies that heavily discount their products to customers. So, substantial discount offers are made to customers to meet short term sales targets, without considering future implications of this strategy.

What must be remembered though is that customer value expectations are largely defined during and soon after the point of acquisition. Once a business customer is on board and these have been established (on a discounted basis if lots of acquisition offers have been used to acquire those customers) it will be very difficult to subsequently change those value expectations. A business intent on volume, will struggle to manage its retention and if it does, will only do so at a high cost. After all, if you are giving away goods at acquisition, then you will be expected to do the same at the end of the cycle, if you want to retain your customers. Subsequently, you end up spending more than ever on both acquisition and retention.

One misplaced argument is that without an aggressive acquisition strategy, a business risks losing sales to competitors. It might be the case, but lowering the barrier to entry for customers through unsustainable propositions to get them to buy a product they can’t afford at full price is one of the biggest contributors to customer churn. Why would a business want customers who can’t afford to buy from them?

Understanding your customers

The second step in successfully retaining customers and so delivering growth, is to really understand their business and respond to and predict their behaviour.

That means segmenting prospects and customers based on shared demographics and characteristics, such as propensity to buy, behaviour, performance, attitudes and motivations. Increasingly, segmentation needs to be focused away from pure products and redirected to business characteristics and also for smaller businesses the individual responsible for purchasing. With SMEs, for instance, where the owner or director’s attitudes can determine the purchase decision, this is essential.

Another area to focus on is why customers stay with you? Is it because they value what you do for them or really simply because they are tied in to a contract that prevents them from leaving? It’s important to look at the impact that contracts, business rules, and terms and conditions are having on your business. Are contracts and tie-ins actually forcing your customers to churn or downgrade en masse at a particular time? There are very few businesses that proactively try and influence when a customer will churn. Most businesses still wait and only take action when a customer appears about to walk.

If a business has a churn problem, they usually throw money at it in reactive retention. Experience suggests they would be much better throwing more effort into proactive retention – a far more cost effective option. This would involve identifying the most at-risk customers and focusing on them. Activities such as service messaging, or ‘exclusive’ offers can significantly improve churn over time. It’s a long term approach rather than a quick fix - one reason why many businesses give up and rely on reactive quick wins instead. However, if businesses are serious about regaining profitability in their customer retention activities, then they will increasingly need to focus on proactive retention rather than reactive retention.

Good Customer Service

The final part of the equation is good customer service. That doesn’t just mean call centres. Many companies spend millions of pounds on the call centres, but many fail to make life easy for their customers, which is what it is all about. Customer service is really about customer experience. Customers want joined up and consistent communications through the channel of their choice; some don’t want to speak to you at all and that also needs to be recognised. And in today’s world it is unacceptable to not have systems that can remember and record previous customer interactions!

The final note of caution is that in order to properly fix customer retention, you need two further things: A talented and sizeable team of people focused on the customer and a cross business team that works together and to the same customer and business goals. All the causes of customer churn are a result of the business not working to the same goals. The best sports teams are those where the players have a deep understanding of each other and what they do, and play as a team and not as a set of individuals. Think Manchester United perhaps, rather than Chelsea. The best businesses operate in the same way.