Customer Bonding—Retain More Customers Longer

On September 22, 2011, in HRExaminer, by Ed Goodwin

customer bonding - retain more customers on hr examinerThis is a guest post from Ed Goodwin. Ed Goodwin is Managing Partner of Demand Facts Inc, a Massachusetts-based consulting practice he founded in 2000. Ed has over 30 years of hands-on experience providing marketing and customer research & analysis solutions for leading providers in several industries. During the past 10 years, Ed has specialized in helping HRM and other B2B providers effectively increase their sales and profits through use of advanced market opportunity analysis, sales win/loss analysis, customer bonding/retention analysis and other demand-related intelligence solutions. Prior to founding Demand Facts, and after obtaining his MBA in Marketing, Ed spent several years as Vice President/Group Manager at Burke Marketing Research before becoming the Executive Director of Analytical Services for Sutherland Global Services.


Customer Bonding—Retain More Customers Longer

By Ed Goodwin

Customer Retention

Customer retention is a matter of survival for nearly all businesses. The higher the customer retention, the more successful your business becomes. It’s simple math that lost customers equals lost revenues and profits. So your goal is to prevent your current customers from switching to your competitors because your customers are:

  • Not happy with something you did or didn’t do (i.e., product, support and/or price related);
  • Attracted to a seemingly superior competitive offering.

Of course, some customers are lost due to circumstances that are beyond your control. Some stop needing your service, go out of business or merge with another company.

If you sell multiple offerings, it’s particularly important to prevent the loss of customers who purchase several or all of your products.   But it is also important to understand and manage customer retention for each individual offering.

Good Solutions – The Most Common Approaches to Retain More Customers Longer

Customer Attitude Tracking Programs: Many companies conduct surveys among their current customers to measure their overall satisfaction (CSM), recommendation (NPS) and/or stated loyalty levels. In addition to overall attitude ratings, most of these programs include open-ended questions and a few ratings on general performance dimensions or touch-point areas.

The purpose of these customer survey programs is to measure the opinions of a representative group of customers for each major product/service in order to [1] identify improvement priorities and related insights for increasing success on the survey subjects; and [2] set performance goals and corresponding compensation awards for certain employees.

The goal is also to increase future customer retention rates.  However, having customer satisfaction information alone will not likely lead to acceptable customer retention levels because:

  • General attitude ratings are often weak drivers/predictors of B2B customer retention
  • Programs rarely include the specific dimensions which are significant retention drivers/predictors
  • When key specific retention drivers/predictors are included, they are often ignored because they are usually found to be relatively weak drivers/predictors of the overall attitude ratings

Customer Feedback Systems: Some companies use various processes to obtain customer-related intelligence from their account or customer service reps and from customers themselves. However, customer feedback has similar weaknesses in driving/predicting customer retention over time because:

  • Feedback is not representative or conclusive across customers (self-selection, low response, etc)
  • Feedback is usually too general, incomplete and misleading to be useful (rep misinterpretations, not confidential, self-administered, etc)

Better Solutions – More Effective Ways to Retain More Customers Longer

While feedback and surveys provide important and useful information, they are usually insufficient to prevent most customer defections because the information is too general.  The following specific types of information will lead to greater customer retention success:

Segment-level Focus: Retention-related intelligence must be separately analyzed and acted-upon for distinct customer segments because retention rates and significant retention drivers/predictors usually vary widely across specific customer groups– especially among users of different offerings.

Different retention rates and drivers/predictors are also likely to exist for the same type of offering from your competitors. So category “benchmarks” and other retention-related results for competitors are only useful to identify opportunities for new customer acquisition activities.

Problem Detection & Resolution Tracking Process:  Monitoring the incidences, frequencies and resolution status of the problems your customers encounter is an excellent way to learn about the customer experience and why they may leave. Problem tracking can uncover “low incidence/high retention impact” dimensions that are often excluded or ignored by customer attitude tracking programs. “Invoice issues” is one good example.

Lost Customer Analysis Program: This type of confidential survey program obtains accurate and indepth intelligence from: [1] open-ended questions on the reasons for defections; and [2] provider & product ratings from representative groups of lost and loyal customers. This data provides a solid basis to identify the most effective priorities to prevent additional defections and to win-back lost customers.

Best Solution – The Most Effective Way to Retain More Customers Longer

The “Good” and “Better” approaches can produce valuable guidance on how to prevent many customers from defecting. However, performance-related perceptions and feedback only go so far to explain why customers stay or leave. It is natural to believe that defections are solely due to poor performance or the availability of better options; but that is only sometimes true.

If you look closely enough, you will find evidence in your own customer data and first-hand experiences that tell you why customers stay or go.

  • Many customers who claim to be very satisfied, loyal and willing to recommend, actually switch each year.
  • Many unsatisfied customers stay as customers for years.
  • Many customers who do not switch despite paying higher prices than they would from competitors.

For example, I handled a customer satisfaction program for Lotus 1-2-3 many years ago.  I was surprised by the large number of customers who did not defect, and did not plan to, despite their very low satisfaction ratings — especially given the level of marketing activity for a new competitor called Excel. To make a long story short, 1-2-3 retained many unsatisfied customers for years until Excel finally offered the ability to use 1-2-3 data, tables and formulas. Then there was a mass shift to Excel.  Thus, the customer bond was the substantial cost/effort needed to switch to a competitive software program.

Customer bonding strategies, practices and relationship dimensions

In general, customer bonding can be a powerful strategy to differentiate you and your offerings from your key competitors, especially for delivering “best total solution” and “customer intimate” value propositions.

The most effective customer bonds are structural and woven into the basic fabric of your offering or delivery system. Such bonds are based on the features or conditions that are impossible, difficult or expensive for customers to do themselves, or for competitors to copy. Most customer bonds produce meaningful benefits or advantages for customers, but some do not.

Customer bonds are generally one of three types:

  • Switching Costs – the most well known and easy to notice bonds. Implementation fees fit into this group.
  • Switching Losses – unique features or benefits that are impossible or very difficult to replace or copy. Trusting relationships and specialized expertise/experience are two possibilities.
  • Prevention Bonds – practices that effectively reduce the chances or ability to switch. A legal contract is a clear example.

In summary, customer bonding strategies and practices are:

  • An effective means to retain more customers longer than traditional approaches alone.
  • Easier and less expensive than [1] attracting and winning more new customers to replace lost customer revenues and profits; [2] cutting prices or giving special deals to save current customers; or [3] trying to achieve 100% performance perfection.
  • Particularly useful to hold customers against highly aggressive/attractive competitors, to earn needed profit margins, and to implement “best total solution” and “customer intimate” strategies.

 

 
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