The art of retaining customers
 There comes a point when every customer decides they no longer want to do business with you. It is inevitable. What is not inevitable is that their mind cannot be changed and they cannot be convinced your business is the one that can still service their needs. Keeping these people on side is what customer retention is about.
In my experience this vital activity is often ignored or done badly. Ignorance usually comes from smaller businesses where the emphasis is placed on driving revenues by selling to new customers rather than protecting the money coming in from existing ones. Badly knows no type or size of business, often appearing either as an "add on" task within the customer contact centre, or as something that's done without understanding how it fits into the business. Either way, the results can be disappointing and sometimes damaging.
At its most basic, retention falls into two camps: passive and active. Passive retention is the approach we may be most familiar with. We wait for the customer to contact us and then we encourage them to change their minds with "save the sale" techniques in our call centre, or "loyalty discounts" behind the online cancellation pages. For the most part this is undertaken by those firms who have a subscription or regular payment model, such as online content, insurance or utilities. In theory it is relatively easy to establish as it requires simple modifications to a website, or some additional training and support for agents.
Active retention requires greater business intelligence and often investment. The objective is to identify those people whose behavior suggests they are about to become disloyal, then proactively contact them before they can make that conscious decision to go elsewhere. This is not the same as blanket loyalty programs or untargeted discounts for long-term supporters, but about picking up the phone or writing an eMail that saves future revenues.
Being active requires a constant watch on the customer base for signs that something is going on, then having in place a suite of tools to reach out. Some years ago, during my consulting career, I worked with a retailer who was disappointed with the performance of their loyalty program. By looking into their data my team was able to identify an indicator of disloyalty developing - toilet rolls. If a shopper did not buy toilet rolls on the visit their normal purchasing patterns suggested there was a high probability that within a couple of weeks they would stop coming back.
Their retention strategy was built out of constantly mining their data in search of potential disloyalty, and then sending vouchers in the mail. Initially sent as blanket "money off" coupons, the mailings were eventually tailored to offer a discount on a product the customer normally purchased, which proved to be much more effective. The strategy even produced an instance where a specific cheese was ordered into a specific store because just one person with a high spend purchased it.
Clearly delivering this level of sophistication required a substantial investment in technology and may be beyond the reach of many. Yet even simple approaches can yield results. When home insurances were due for renewal, one insurance broker I knew would call the policyholder and talk to them - but only if that customer had cancelled or lapsed another policy during the previous two years. A few years before he'd noticed how those who cancelled one policy would gradually move away over a couple of years. His simple intervention of a phone call limited this effect and typically he saw a third of the people he spoke to come back into the fold within two years.
The key to both of these examples is that the approaches had been thought about as part of the overarching business strategy. Volume mattered to the supermarket, so it made sense to invest in automation and technology. Profitable customers mattered to the broker, so while he was happy to allow transient policyholders to come and go, those who had more than one policy were typically more profitable and therefore worth protecting. The personal touch of the phone call enhanced his brand as the "local" expert.
When you start to form your retention strategy it must be considered within this context. If your aim is to increase your customer base you may decide to use techniques that hit as many people as possible, regardless of profitability. On the other hand, profit hunters may be more selective, willing to lose outright revenue because the cost of winning it is too high. Whatever decision is made, it must be a well informed decision, which is where I have often seen retention strategies fall flat.
A small business I was working with had adopted a fairly traditional passive retention strategy because it seemed like the right thing to do. Customers would call in to cancel their subscriptions, at which point the agent would try and talk them out of it. They were reasonably successful, and an Activity Based Costing exercise had shown it cost twelve pounds to field the cancellation call. Based on margins it would take about four months to recover the extra expense, and as on average a saved subscription would last for another eight or nine months before it was finally cancelled. It appeared there was profit to be had.
What I saw wasn't twelve pounds, but more than forty. Yes, it cost twelve pounds to handle one call, but only one call in four resulted in a saved subscription. A simple maths error had resulted in the management team buying into a strategy that was making an operational loss. This was not good news for a business actively seeking profits.
A simple solution - one taken too often perhaps - would have been to give the agents some more sales oriented training and then set specific retention targets. In some cases this may be the answer, indeed sometimes retention teams perform so poorly because they are treated as a customer service team rather than a sales team. For this business the strategy took on a more rounded approach.
The passive component was moved largely online. Many customers managed their accounts via a website, although providing a "cancel my subscription" option had been resisted to drive people into making a call. The new cancellation page was designed to focus on the benefits of membership, while follow-up eMails were designed that counted down to the date access was withdrawn, each giving an option to repurchase at a "welcome back" discount. It was simple, cheap to set up and although retentions were barely in the double digits, the investment was recovered within a few weeks.
Two active components were also created to target "desirable" customers - typically those who bought additional services or who recommended other people. First was an outbound phone call from the customer service team to those who did not log into their accounts during a four week period. Structured as a survey, the call was designed to both collect information to determine whether or not to continue trying to retain them, and to remind them they were subscribed to the service. Second was an outbound call from the sales team to those who did cancel online. Already subject to the passive tactics, this gave the desirable customers an extra nudge in the right direction.
Finally, the payment structure was changed. Direct debits had been accepted, but these can be cancelled directly at the bank, therefore bypassing the retention strategy completely. New subscribers were only offered cards as a payment method, drawing them into the pool of potential retentions.
It is true to say that revenues dropped marginally as a result of lower retention rates, yet so too did operating costs. With greater discipline and understanding within the strategy it became easier to tweak components, making them more effective. The result was an increase in profitability, freeing up money for investment.
To my mind retention is one of the key, and often overlooked, strategies. I've seen too many businesses who seem quite content to watch customers leave without even talking to them to find out why. I've also seen good money thrown at bad ideas which may keep numbers on the books, but do little for profits. With a well thought out strategy there is no reason why you shouldn't be able to retain customers who might otherwise walk away.
Originally published on Customer Management IQ
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