Customer Retention Part 2: Plugging Your Leaky Customer Pool

by Dean Rieck

In Part 1, I showed you a dramatic calculation that demonstrated the lifetime value of customers and the profit you sacrifice when they defect. If you lose one customer every day who spends just $5 a week, you're out $94,900 a year ($5 x 52 weeks x 365 days = $94,900)! If you're a service business, you're losing 15-20 percent of your customers every year. So the actual loss is huge and growing persistently over time.

At the heart of customer defection is lack of satisfaction. This isn't the same as dissatisfaction, which means an active dislike for something. Lack of satisfaction is simply the absence of any good reason for a customer to stick around. Do you remember that U.S. News and World Report statistic I gave you? A whopping 91 percent of customers who leave do so simply because they are not satisfied.

How do you satisfy customers and retain their business? Any number of ways. But since all relationships are based on good communication, that's a common-sense place to start. Specifically, this means asking questions, staying in touch, and being generous.

Step 1: Ask Questions

People almost never tell you when they like something and only occasionally complain when they don't. So the only way you'll find out what you're doing right or wrong is to ask your customers.

Ask directly with a short questionnaire, a comment card in your fulfillment, a phone survey, a feedback form on your Web site, or whatever it takes to get answers about the good and bad of your customers' experiences.

Keep the lines of communication open with a dedicated, toll-free customer service phone line and a special customer service e-mail address. Feature this information in your store and catalog; on your Web site; and in invoices, e-mails, and all customer communications. Staff your customer service department with well-trained people. When you get complaints, solve problems promptly, give customers something for their trouble, and remind them that you care.

And, since people move, get married, have kids, and constantly change, you must keep your database fresh. Only when you know the who, what, when, where, why, and how of your customers' purchases will you be able to fix problems and improve service.

Step 2: Stay in Touch

They say that absence makes the heart grow fonder. But they're wrong. Familiarity makes the heart grow fonder.

A simple, inexpensive newsletter may be all you need to maintain a friendly familiarity with your customers. It can include information about new products and services, company policies, helpful articles, and anything that may be interesting, relevant, and useful. Just make sure it isn't a bunch of thinly veiled advertisements. People will see right through that.

Letters and e-mails are great ways to thank customers for their business and reward them with special offers and inside information. For your top customers, consider a personal phone call just to say thank you.

Of course, a regular stream of offers also works, though you'll lose a little of the bonding effect of more personal contacts. If you can tailor your offers to a customer's buying habits, however, this can be very effective. Some online companies, such as, do this quite well, combining targeted offers with a personal feel.

Step 3: Be Generous

People are willing to pay for quality. But don't nickel and dime them to death. A while back, I bought a relatively expensive computer. At the conclusion of an otherwise topnotch sales experience, the salesclerk asked if I would like a mouse pad. I said, "Yes," only to have the clerk say, "Okay, that's three bucks." It was a nice mouse pad, but after spending thousands of dollars for a computer, monitor, and several accessories, that extra $3 felt like an insult.

Little acts of unexpected generosity can go a long way toward cementing your relationship with customers. Free floor mats with a car, a free tape with a VCR, a free light bulb with a lamp, free advice with completed tax returns. Little extras make your customers feel that you're a friend, not just another company out for a buck.

For more information on "generous" marketing, read "Harnessing the Power of Kindness".

In the end, business is more than sales. It's about relationships. If you develop and nurture those relationships through a common-sense retention program, you can reduce customer defections and increase your profits dramatically.

Copyright © 2001 Dean Rieck. All Rights Reserved.
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