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by Joanne F. Gucwa

This article first appeared in our TECHMANAGE newsletter
March 1999, Volume 3, Issue 2

Build customer loyalty by delivering customer value. No problem there. But here's a caveat: beware of putting the cart (setting up a process for understanding what it is that your customers value) before the horse (setting up a process for determining if you are successful, i.e. reaping increased customer loyalty). See the sidebar A BRIEF LOOK AT VALUING CUSTOMER LOYALTY.

In the last issue we suggested three approaches to understanding value from the perspective of your markets:

(1) Survey the customers you lose
(2) Encourage customer complaints
(3) Derive customer value indirectly

Each of these is a departure from traditional surveys. In reality, these three methods each hold far greater potential for getting to the underlying rationale for why buyers make the decisions they do than "tried and true" customer satisfaction studies. Due to the length of this issue, we will cover approach (3) in the next issue.

(1) Survey the customers you lose.
This is similar to conducting exit interviews of employees departing for greener pastures. Make it brief and be humble. This is no time for boasting how great you are, bad-mouthing the competition, or burning your bridges. As a matter of fact, by the very act of asking what went wrong, you are definitely in the courageous minority and may be actually REBUILDING the bridge.

Here is an example of how you might approach former good customers that defected...through a non-intrusive e-mail message. By modifying the words to fit your specific situation, you can use this "script" in several different media, e.g. telephone, fax or even a personal visit (if the customer is really important to you).

Hello Mr./Ms. former Customer,

We're sorry we didn't live up to your expectations and would very much value your honest feedback. We strive to make continuous improvements to our operations and ask for just a few minutes of your time to help us understand where we missed the mark.

Would you please tell us what the precipitating factor was in your decision to use another vendor?
Was this the most important issue, or were there other factors as well that influenced your choice?

If there were one thing you would suggest that we change or improve, what would that be?

Thank you for your feedback and past business. May we keep you apprised of our progress in the areas you mentioned?

Short, sweet, no groveling...just keeping the doors open.

(2) Encourage customer complaints.
Another exercise in humility that pays dividends your arrogant competitors will never see. How might you encourage customer complaints? Certainly not by boldly asking your customers "what's wrong with us?" (You knew that already, of course). But you CAN pave the way to valuable feedback by capturing opinions - positive and negative - at points when your customers are most likely to speak their mind: when your offer (and competing ones) are fresh in their minds. Here are two such times:

* While electronically registering their purchase. Naturally, you want to avoid setting off buyer remorse when they've just made a purchase from you. Here's how you do it.

In your registration form, include a double question set such as "What is your impression of our product?" with a multiple choice selection ranging from "absolutely exciting, unsurpassed" to "positively awful."

You know that if someone's bought your product, they're not about to give you a low score. On the other hand, by giving them a totally exuberant choice at the high end, you're subtly (or not) steering them to think that nothing is THAT good, and most will probably give you the score just under the highest one. Perfect! Now you ask the REALLY valuable question: "Why did you say that?" just as they're thinking how your offer might be improved. Leave it open-ended.

If you're serious about constant improvement, e-mail your customers a mini-survey about a month after purchase, asking how they like the product and "if there were one thing you could improve, what would that be?"

* Set up a short Web-based survey at your trade show booth. This is an ideal time to elicit feedback. Attendees are walking around, taking in the cornucopia of products and services surrounding them, their attention focused on your products and your competitive environment. Ask for some personal information to minimize flaming or silliness (alas, no system is foolproof!). And to thwart the efforts of your competitors to look over your booth visitor's shoulders, be sure that your monitors face away from the aisles. ;-)

What's the big deal about defining and measuring customer loyalty/retention? Just this. In a budget crunch, what's the first category of activities to be cut? Of course. The so-called "soft" programs that aren't able to demonstrate hard, bottom-line numbers resulting from them. Smart managers will correctly ask: Why bother doing something if its results aren't (or can't) be measured? The fact is that hard, bottom-line results CAN be seen from increasing the level of your customer loyalty (or decreasing their departure rate).

With this in mind, let's take a quick look at the four ways you can measure the success of your customer retention program (with thanks to a prospective client who reminded us of the fourth measure). They are:

(1) Amount of repeat business
(2) Greater share of a customer's mind and wallet
(3) Increased profitability
(4) Better benchmarks than your competition

(1) Amount of Repeat Business
Whether you're producing cars, computers, cakes and cookies, or even consulting, knowing which customers or clients come back - and how often - gives you vital information on what you're doing right. For the most part, repeat customers are easier to deal with and will often forgive occasional lapses that a first-time customer might not. When it comes to customers, familiarity breeds comfort, not contempt.

(2) Greater Share of Mind And Wallet
What this means is that loyal customers will (a) tend to spend more on your regular products and services; (b) think of you first when they have a need they think you might be able to fulfill; (c) be open to new products and services you may have to offer. This elevates your loyal customers closer to a partnership relationship with you, leading to:

(3) Increased Profitability
If you track all the costs it takes to service an existing customer vs. a new one, from advertising and promotional expenses and efficiency of doing business, you'll find substantial savings resulting from (a) elimination of introductory sales calls and distribution of expensive sales-oriented brochures; (b) less time spent in learning the customer's operations, likes, dislikes, et al. (c) their suggesting you to others who have similar needs - a great referral resource - as well as greater profits from their purchase of higher-margin value-added products and services.

(4) Better Benchmarks Than Your Competition
Your "churn" rate (percent of customers leaving for a competitor) may be less than it was last year, but if it is higher than what your competition is experiencing, you are still losing ground. This will eventually show up in declining profitability and market share.

Studies have shown that a mere half percent increase in customer retention results in between 10 and 30 percent increase in profitability, depending on industry. If you'd like to reduce customer defections, we'd be pleased to help you understand and build value for your customers.

Next time we'll discuss deriving customer value indirectly, thinking about the customer as "product" and knowing when "enough is enough" when it comes to sample size. In a future issue we'll talk about identifying the customers you should fire...you know, the ones who cause you grief, who you'd like to send to your competitors (it's the old 80/20 rule).

Technology Management Associates, Inc.
(312) 984-5050jogucwa@techmanage.com

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