9: Customer Loss: How to Prevent It and What to Do When It Strikes
Many businesses are complacent about churn, accepting that customers leave without seeking to understand the reasons why, and figuring that they will be replaced with new customers if the firm does enough advertising. However, as shown earlier, not all customers are equal. Specifically, a 'veteran" customer represents more sales and costs less to serve than a first-year customer - so even if the firm is breaking even or even gaining in head-count, it can still have a negative impact on revenue and profits.
The LTV of a customer is also to be considered - a "lost" customer is more than the loss of a single sale, but represents the loss of the revenue they would have spend over the lifetime of their engagement. You also lose their referrals and word-of-mouth (which go to the competitor who won them away) and may generate negative word-of-mouth. As such, it merits greater attention and investment in discovering and reducing customer losses.
One example involved a person who kept track of the number of people he told about a negative experience with a firm - it's somewhat exaggerated, as this person was a marketing professor who used the incident as an example of bad service - but the total number of people who heard the story from him came to 3,503 (EN: this may not be so exaggerated after all. A single person who mentions a negative experience on a blog, or on a product review Web site, can reach thousands or millions of people.)
The Lost Customer Dilemma: A Closer Look
A reminder that your best customers are your competitor's most desired prospects, and that firms can be aggressive in attempting to lure your customers away - and in many instances it's entirely legal and quite simple for other firms to find out who your customers are (observe your store from across the street, follow your delivery vehicle around town, or just survey people to ask about the products they use).
Simply undercutting price can lure customers away, or at least get them to try the competition "just once." And unless you are head-and-shoulders better in ways that customers value, some portion of them will not return. Competitions are also very good at determining which of your customers is unhappy, and susceptible to suggestion. And while quantitative research often shows that customers most often cite price as the reason for changing vendors, qualitative research has often found that there is some other source of dissatisfaction that, if addressed, would retain them even if price is not decreased.
It's suggested that new customers are fickle, but long-term customers are willing to tolerate occasional or minor shortcomings and are resistant to competition - so when you lose a loyal customer, the reason lies not with the customer or the competitor: it's something you have done wrong. It may be a single, egregious failure or a prolonged sense of discontent that grows over time. The author suggests that the "slow leaks" are much more common than the "blowouts" - and much harder to identify, because loyal customers tend not to complain about "little things,"
It's further suggested that the chief problem is "benign neglect." Said another way, the customer has been provided with adequate but not outstanding service, you've not done anything "special" for them in years, and they feel taken for granted. A competitor who appears to value them and is willing to pay special attention can be very appealing.
In some instances, dissatisfaction arises when you misunderstand what is important to your customers. As such, the vendor focuses on the wrong things, sometimes at the detriment of the factors customers value more. For example, if the vendor feels that "low prices" are what customers value, it may decrease the size of its delivery fleet to control costs - and if customers valued timely deliveries more than low prices, the action will have done more harm than good. (EN: This is especially dangerous, because companies often respond to the praise they get from the wrong people - the industry press, their own executives - and seek to be "better" at things that get them more of the same, even if it's not what the customers want.)
It's said that customers "vote with their feet," suggesting that a disappointed customer will simply walk away rather than voice an objection. (EN: this is a matter of social dynamics, and conflict avoidance is more pronounced in some cultures than others.) It's suggested that only 4% of unhappy customers ever speak up, and the other 96% just leave (and 91% leave for good). With that in mind, keep a sharp eye out for this signal: decreased interaction, which includes decreasing the amount or frequency of orders, approving proposals more slowly, making plans only for short-term work, being made to interact with lower-level employees, etc.
Many products are completely commoditized, and even those that are not have weak brand preference, such that customers substitute one for another without much hesitation. As such, customer loyalty is often based on qualities that are not germane to the core value of the product: decisions are made on non-essential features, customer service, and price.
In terms of service, the author presents a case study of a company that sells construction materials (stone, concrete, asphalt, etc.), which are regarded as commodities by buyers. To distinguish itself (and justify a price that's about 6% higher than competitors), the firm seeks to compete on service. The company periodically (every three to four years) surveys customers to determine services the customers value (rather than merely assuming it's based solely on the quality of the rock) and scores itself against competitors - and the information is analyzed and shared with all employees.
Another case study presents a call center, which is something most companies do with little care and a minimal budget. Realizing their customers depended on their products to support their own operations, there was "zero tolerance" for problems and very little patience to get the help they need. And so this company made significant investment in its customer response team: setting up local call centers in various parts of the world (to ensure callers dealt with a person who spoke their language), increasing the number of employees, setting up a sophisticated knowledge database, and accommodating e-mail and other channels. The company also used the information from its call center to identify problems and be proactive in providing solutions - sometimes so quickly that the customer never realized there had ever been a problem with an order.
Complaints as Loyalty Builders
Some companies have invested considerably into providing flawless service, only to discover that getting things "right" every single time didn't have a significant impact on customer loyalty. In effect, what companies define as "flawless" is merely meeting the customer's basic expectations: product performance, sales price, delivery date, and other promises made by a vendor are expected to be met and customers do not regard it as remarkable when the vendor satisfies its basic obligations without any glitches.
And while "flawless" should be a goal, things do not always go as planned - and these instances are seen as remarkable by customers. The way that a company responds to a customer complaint can create or damage customer loyalty in a way that makes a strong and memorable impression upon the customer.
A smattering of statistics from McKinsey: a customer who has a "major problem" but doesn't complain is about 91% certain to defect. If the customer complains but gets no satisfaction, the rate drops to 81%. If the problem is resolved, the rate drops to 46%, and if it is "quickly" resolved, the defection rate drops to 18%. If turned around (repurchase rate rather than defection rate): a customer who complains is twice as likely to repurchase than one who doesn't, a customer whose complain is resolved is three times more likely to repurchase, and if it is resolved "quickly," they are about five times as likely to repurchase.
There is (later) anecdotal evidence presented that a customer who has received a quick and satisfactory resolution to a complaint will not merely repurchase once, but will be more loyal to the firm. When a customer believes you value their business, and you demonstrate that you will act to preserve that relationship, "they will stick with you, almost no matter what."
Getting no complaints is not necessarily a good thing. Quoting an article in the HBR, the author asserts that "nobody is every [completely] satisfied ... over an extended period of time." Getting no complaints mean that the customers do not feel that complaining will do any good - they do not trust you to listen and respond to their concerns. Or to phrase it another way: the customer who complains expects you will be willing listen and respond, so complaints should be taken as a sign of trust. And to go a step further, the way in which you receive and respond to a complain sets their expectations of your level of concern for their interests, and whether they will be inclined to do business with you in future.
That said, the author returns to random advice and anecdotes:
- Make it easy for customers to provide feedback. Making it difficult to complain will reduce the number of complaints - but ultimately, it will also reduce the number of customers
- Consider soliciting feedback through unconventional channels. Include a "comment" section or order forms, creating an advisory board of customers, interact with customers on third-party Web sites
- If customer's aren't complaining, pursue complaints. Use surveys, or contact customers directly to have an interactive dialogue about their satisfaction with your service. Seek feedback especially from customers who how signs of discontent (e.g., decreased order frequency)
- Responding to complaints quickly - recalling the previous statistics, repurchase rate increases from 54% to 82$ when complaints are resolved "quickly."
- Empower front-line employees to respond to and resolve problems. When a call must be transferred or escalated, or when a retail outlet refers the customer to manufacturing or a separate service center, customer confidence suffers.
- Reduce the hassle of resolutions, such as repairs or refunds. While businesses regard such things as wasted cost and seek to find a low-cost procedure, recognize they are important to the customer, and critical to retaining their future business.
- Seek to provide a "once and done" resolution. It should never require multiple calls, or multiple trips to a repair facility, to "finally" get things settled
The author also notes that there is psychological aversion to dealing with unpleasant situations and angry people - companies (and their employees) seek to escape such situations as quickly as possible, which may mean that the problem is not resolved and the customer, still angry, is left to vent their frustration and seek satisfaction elsewhere (specifically, to express frustration to prospects, and to seek satisfaction from a competitor). More random tips follow:
- Let the customer vent. You can't switch off frustration or anger, and may exacerbate it by cutting it off too quickly. So be patient, let them speak - and as they wind down, seek to redirect the conversation by asking open-ended questions to draw out more objective details.
- Listen attentively and demonstrate you are attempting to understand the problem. Ask questions to gather dental, and paraphrase the description to demonstrate you understand. A tip is to cue the customer you are writing down the complaint, as this shows an earnest interest and fosters a sense of cooperation.
- Try to find out what the customer wants. In many instances, it may be less than the company would offer to appease them - but more importantly, it might be different that what the company expects and a satisfactory resolution is one that satisfies the customer. Alternately, you can suggest a solution for the customer to accept, but even then, you must understand what ultimate outcome the customer seeks to achieve in order to suggest a solution that will satisfy them.
- Keep in mind the LTV of the customer. The "cost" of resolution may be worth less than the profit on that one sale, but it is often far less than the value you will get from the customer over the years if you can retain their business. The author notes this is a particular problem in retail.
- Handle the request personally if possible. If you must refer the problem to someone else, remain involved and follow up to ensure the problem has been resolved.
A general statement very few companies hand conflict resolution well - and the ones that make a point of providing satisfactory resolutions stand out and win customer loyalty.
How to Win Back a Lost Customer
Winning back a lost customer is a difficult proposition, and like conflict resolution, it requires a careful consideration of the customer's perspective. Naturally, you want them back, and have a sense of what you might do to get them to return to you - but ultimately, the customer will decide based on their own criteria. As such, your best resource is to survey lost customers and ask what you must do to win back their business.
Once you've discovered the reasons that the customer left, determine whether you can address them. Sometimes, you can't - but if you can, then do so, and then contact the customer to let them know what you've done. It's suggested that a partial solution is insufficient - a new customer may accept a compromise, but a disappointed customer will not be amenable to negotiating their discontent.
Also, it must be a permanent solution. If you put in place a short-term solution, and then later revert to the practices that cause their discontent, they will leave again - and chances of winning them back a second time are extremely slim.
Lost Customer Studies
Even when a customer is "irrevocably" lost, knowing the reasons for their departure can help you to identify and address issues that might help you to retain other customers. The author notes that there is no other source that will provide this information as directly or candidly.
The best approach is to ask: "what made you leave?" It is an open-ended question, which is important because, while it cannot easily be tabulated, it is not restricted to a short list of predictable responses (if you knew why customers were leaving, you don't need to ask). The question is also phrased to ensure that the customer focuses on what your company did wrong, which identifies things you can act on.
It's also noted that customers often leave for reasons that are not obvious. The last problem they encountered may not be the most significant one. Nor is it generally true that a competitor's offer won them away (there are other reasons they left, this was just an opportunity to act).
And if nothing else, a lost customer may help you identify a target segment you may not want to service (or may be incapable of servicing). A customer who expects something you cannot feasibly provide (such as a physical store in a sparsely-populated area, additional services and perks that would consume the profit margin) is not worth serving. Neither is it worthwhile to serve customers who have no loyalty, but constantly switch providers to get the cheapest price (one example is a benefits company that used a screening question to eliminate customers under a certain size who had switches providers more than twice in five years). It's been said before, but not all customers are worth having.