Winning means losing in the game of customer retention

Linda O'Grady

  • Data Strategy Partner & Business Partner, CX Lavender
Linda O’Grady is Data Strategy Partner & Business Partner at CX Lavender. Linda is a hybrid business strategist, data strategist and post-graduate qualified change manager. She leads CX Lavender’s integrated capability across communication, data, technology, performance and innovation as well as its Agile and lean delivery teams. This includes hybrid model in-housing for large corporates such as Westpac Group. She has a true understanding of both sides of the agency relationship having been a Head of Strategy for SE Asia for a large networked agency as well as Head of Marketing Planning & Performance for a major multi-brand corporate. She’s also spent nine years in start-ups and scale-ups honing her innovation understanding and ability to get from A to B quickly and cost-effectively.

In the field of customer retention, success is not about protecting the status quo, particularly in 2020. It’s very clear the status quo left the building somewhere between bushfires and lockdowns. If your business is trying to protect everyone it had before our world turned upside down, it’s worth looking at it a different way.

That is, not every customer is worth hanging on to. Yes, I said it. In a world where, quite rightly, we are very focused on meeting the rising expectations of customers, it’s a gutsy move to admit the relationship needs to be win:win. It does. To be clear, that doesn’t mean ditching your most vulnerable customers. There’s a clear distinction between caring for customers well and fighting to keep them when they’re at risk of moving to a competitor or when they’ve stopped buying products from your category.

All too often retention is a blanket goal. ‘We need to hang on to our customers’ is reverberating around boardrooms all over the country right now. But what if we reframed that statement? 

Worthy customer sentiment

If you asked pretty much anyone in c-suite whether they wanted to throw the same time, money and effort into keeping the guy who flits in and out of the business chasing deals versus the one who has been consistently buying your products and saying nice things on social media, the answer would be clearer. The right goal is to invest in identifying and keeping the customers who are desirable, viable and feasible to keep.

In essence, we need to actively decide which customers to fight for and how hard to fight for them, or risk not achieving success in retention at all.

As we all know, businesses have finite resources to invest and there are competing demands for staff, money and focus. Success doesn’t look like a whole bunch of customers who don’t drive the P&L or bring future potential, especially when that comes at the cost of focusing on better customers. It also doesn’t mean just giving a tonne of love to your best customers and forgetting those who don’t drive much profit but help carry your costs through sheer volume of numbers.

It does mean actively deciding which customers to say goodbye to and then letting them leave without a fight. No ambiguity, just conscious uncoupling like Gwyneth Paltrow and Chris Martin. A big and quite scary decision, I know.

Where do you draw the line and how do you make sure your service channels know? The question is even trickier when there’s the great middle ground of customers we want, but only to a point or only if they’re willing to change their behaviour.

The Pareto Principle, or 80:20 rule, still applies to most businesses. Sometimes it’s 70:30, but in 20 years I’ve never seen it vary much more than that. Many a hierarchical loyalty program is driven by this idea but the Pareto Principle is not the answer. That’s because there is also a need for economy of scale to manage costs, as well as a desire for growth in the long term.

A singular focus on that important profit-driving 20 per cent won’t work on its own because business costs would go up immensely if it wasn’t for economy of scale. That means we also need the customers who help carry the costs, even if they don’t make much profit. And then there are the advocates, or people who go out there and sing the praises of a company and encourage new customers. They are often not terribly profitable customers either. Last of all are the ones where the future of your business lies – potential customer lifetime value. They may overlap any of the groups above.

The need to balance all these different kinds of value makes it trickier to put the energies of your business in the right place.

At CX Lavender, we solved this issue for Telstra several years ago and have done it multiple times since. The solution is made up of four parts.

1. Decide who to fight for

The first piece is a scoring model that recognises the combined value of a customer against the attributes I’ve just described, as well as their likely level of happiness. If the data points aren’t in place, it can be developed over time using progressive profiling. The critical piece of the puzzle is keeping it current and surfacing it to the right people or channels in a way that can be used to make a difference.

It’s also very important to note that attrition models won’t do this job. They’re calibrated to who you might have lost regardless of a pandemic or recession and they don’t put attention on who you want to keep. Attrition reduction is a purely defensive strategy when a more aggressive offensive is needed for a time like now, particularly if you’re not the market leader. “Offence is the best defence,” as they say.

2. Decide how to fight for them, and how hard

The second key component is a plan for each customer, including how far the business is willing to go to keep that customer. This also needs adjusting for the customer’s likely level of happiness or unhappiness. There should be clarity on what the business is willing to offer or proactively provide considering the four main consumer outlooks for risk and recession. They will impact what your customers want from your business.

Outlook matters because consumers set stricter priorities and reduce spending during tough times, but they don’t all do it in the same way or to the same extent and they don’t all revert afterwards at the same speed.

This difference in behaviour is driven by outlook and it doesn’t always line up with socio-economic standing either. That last bit really matters because we all want to hang on to our customers, but most of us don’t want them heavily in debt or unable to pay their bills either. We need to have a plan for how to address each of these outlooks across the full spectrum of our customer base, from the vulnerable right through to the highest customer lifetime value potential, both advocates and non-advocates.

The four risk and recession outlooks are:

3. Get the plan to your fighters on the ground

The third critical component of a smart retention approach is timeliness – that is, actually doing something with the information and keeping it current, proactively and reactively.

Sales and service channels – both human and digital – must be able to recognise customers and action the plan for that customer in the moment. There are some clever low-fi workarounds for POS systems that aren’t connected to your customer data to help enable this.

4. Nail service, including digital service

The last and incredibly important component is an unwavering focus on service. This can be supported very well by the three other components above. It also relies on processes, staff training and attitude to deliver service that is engaging, fast to respond and personal.

For example, in a 2018 Harvard Business Review article, ‘How customer service can turn angry customers into loyal ones’, the authors found any form of response to a complaint or negative comment on social media led to a net promoter score lift of 59 points for the telco and 37 points for the airline tested, as well as increased repurchase commitment and decreased price sensitivity. It’s a huge impact on retention. This also worked for really happy customers who received responses to their positive comments. The impact on them was even more significant.

The insights in all of this are simple. Gather the information to help you choose the right customers, not everyone or just the best ones. Then decide how hard you’ll fight for them, be proactive and don’t leave it right to the end.  

Tags: customer lifetime value, Customer Retention

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