Four key steps to customer retention
The sales revenue closest to home has never been more vital, says Richard Higham, so customer retention plans are still stalling due to misconceptions. He gives four key steps to implementing a solid strategy.
The guiding principle and starting point for any customer relations strategy is to hold on to what you have got. Sometimes it is tempting to be driven by the ‘need’ to find new opportunities when the real priority is a lot closer to home. If you have aggressive plans to acquire new customers as a response to the economic downturn but are pouring water into a leaky bucket, your customer strategy is flawed.
Some would say that if the organisation’s re-buy rate (its contract renewal rate) is currently less than 70%, it should not be wasting time and money on the drive to acquire new customers; rather, it should be fixing the hole in its bucket first. While customer retention may be tough but it can be a lot easier than winning new business – especially in this climate.
There are four steps to effective customer retention: segmentation, service, systems and selling. Together they deliver customer stability – and customer stability delivers profitability.
STEP ONE: Segmentation
Many successful sales organisations segment their customers by buying behaviour: are they loyal and relationship-based, value-seeking or fickle, transactional or price-driven? Treat them differently and expect different responses. Constant stimulus and repetition of sales offers will work with the fickle transaction customer. A more subtle, less salesy approach will be needed with the loyal, relationship-centred customer.
STEP TWO: Service
Excellent service builds a brick wall around the customer. They may be tempted away with a crazy price but your good service makes it hard for them to leave you. Make sure your service is as good as you think it is. Use customer surveys (but use them well) and conduct reviews with top customers. Do what one successful business does: each senior manager calls one customer a week simply to check that all is well and to tell them that they value their business. Good service sells repeat business.
STEP THREE: Systems
Ask yourself if your systems are working for you - or against you. Do they flag up contract-end early enough? Is there a sound system in place for customer contact? I was speaking recently to two mortgage lenders: one sends a letter the month before a fixed rate is due to end, but no one is instructed to follow up. The other builds in an automatic reminder in the relationship manager's diary two months before the end and monitors follow-up rates. Not surprisingly, the latter consistently wins business from the former and then holds onto it. Think, too, about your reward systems. Are you paying people only to win new business or are you also rewarding highly profitable but less glamorous customer retention activity?
STEP FOUR: Selling
Are you selling actively to your existing customers? It's ironic that no one knows a customer better than their existing providers, yet all too often we fail to sell to existing customers. We do not want to seem greedy or we fear we will damage the relationship. Often, we think we have ‘already got what we came for’. Yet, customers expect us to come to them with new ideas and new offers. If we have been doing our job they will want to stay with us, so why surrender your hard-won ground to your competitors?
Customer retention is the key to profit and business stability but it is often (still) overlooked. Review your segmentation, your service, your systems and your selling, and seize the opportunities that lie within your grasp.
Richard Higham is global sector head, financial and professional services, at sales growth consultancy Mercuri International.