From the category archives:

Customer service

How to measure customer loyalty

“A 5% improvement in customer retention rates will yield between a 20 to 100% increase in profits across a wide range of industries.” (Reichheld, Fred. The Loyalty Effect.)

Loyal customers are an indicator of great businesses, but many good businesses could become great by focusing more effort on serving and retaining their existing customer base.

Do you currently measure your customer loyalty?

If not, understanding your customer loyalty can help you predict which customers will continue buying from you, which customers are at risk of defecting and the steps you can take to prevent it.

Define Your Goals

There are a number of ways to measure customer intentions. Since this can vary widely depending on industry, market and market segments, the first step is to define your goals:

What exactly do you want to learn?
What’s the best method for getting the information you need?
How frequently will you update the measurements?

Remember to focus on learning about intended actions rather than general feelings & opinions. For example, many customers will say they are satisfied, but “satisfied” may not be good enough to get them to purchase from you again. Instead, try to gather feedback that’s easier to act on, such as:

Whether customers intend to purchase again
Whether customers will refer other customers
Who is dissatisfied and why
Where you can improve
How you can win their loyalty if you don’t have it

Start by generating a list of things you’d like to learn about your customers. You want to understand your customers’ intentions, and you want specific, valuable responses. Here is a list to get you started:

Are you completely happy with the product you purchased from us?
How many times a year do you purchase ____?
Do you sometimes purchase your ___ from another company?
What’s most important to you when deciding to purchase our ___?
Is there anything you would change about our ____?
If you had a colleague with needs similar to your own, how strongly would you recommend our service/product?
What could we do to add value to our offering?
How can we improve our customer service?
What things would you like to see us improve?
What can we do to keep you as a customer for life?

Gather Customer Information

Next, choose your method for gathering information. Here are three common methods:

Survey: Good for gaining honest feedback from a group of customers. If set up correctly, surveys measure feedback more precisely than informal, open-ended communication.

Informal feedback: Good for gaining detailed feedback from a small group of customers. Since responses are evaluated one by one, surveyors can ask highly detailed questions and probe deeper based on specific responses.

Purchase analysis: Good for measuring purchase activity from a large number of customers who buy regularly.

If you’re conducting a survey, carefully structure your survey questions, the length of the survey and the delivery mechanism. Obtain feedback to make sure that each question is neutral, specific and focused on a single topic, and that it will provide the information you seek. Evaluate the different survey delivery methods, i.e., email, direct mail, telephone or a combination of these. Each method has pros and cons, so choose the method that will garner the most truthful information and the highest response rates.

Be careful not to make the survey too detailed. Your customers are busy, and may not have time to answer 25 questions. Shoot for five to seven key questions. If you need more, consider providing an incentive to customers who complete the survey.

If you’re analyzing purchase data, one way to start is to create an RFM model. RFM measures the Recency and Frequency of customer purchases and the total Money spent by each customer. The rule of thumb is that the higher a customer ranks in each of these categories, the happier they are. While that’s not always the case, it can be a useful guideline.

Analyze Your Data

After you’ve collected and organized your data, analyze it and measure your findings. Some questions to consider:

What is your response rate? Is it large enough to create an accurate sample?
What did you learn from the survey?
What actions do the results seem to suggest?

If your data doesn’t present a clear picture, gather more information before jumping to conclusions. It’s better to measure twice and cut once.

If you’d like to quantify the dollars lost from a low customer loyalty number, check out Ken Blanchard’s Cost of Doing Nothing Calculator.

Customer Acquisition vs. Customer Retention: Which is More Important? (costpernews.com)
When Customer Loyalty Is a Bad Thing (blogs.harvardbusiness.org)
Ann Handley: Guest Post: Recessional Loyalty — Strengthening Your Business Through Retention, Repurchase and Referral (mpdailyfix.com)

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When to fire your customer

in Customer service

Everyone knows it’s important to retain customers. Good customers are hard to find and worth keeping. It’s almost always more profitable to keep existing customers than to replace them with new ones.

But what about that problem customer? You know, the one that everyone wishes secretly (or not so secretly) would just disappear?

Sometimes it’s best to just let that problem customer go. Not only can this save you and your team some grief—it might actually save the company money. Let’s take a look at some of the common types of problem customers:

· The Check is in the Mail. Customers who pay late cost you money. If it’s habitual and you’re in a tight margin or credit intensive business, it may be time to cut them loose.

· I’m Outta Here Unless You… This customer continually threatens to pull his/her account unless you give something extra. This reduces margins. If it happens once, it might be a genuine threat and worth handling. If it happens often, it’s probably just a negotiation technique. Stop giving in, and don’t worry if the customer actually follows through.

· The Chronic Complainer. This customer constantly speaks negatively about your product, prices, or service, but still buys from you. Address the complaints, but don’t let it continue. If someone is complaining to you, s/he is probably complaining about you to others, hurting your brand.

· Captain Rude. No one should have to endure verbal abuse. Don’t be afraid to set clear boundaries with this customer. Communicate your expectations about rudeness, and if this customer breaks the rules, say goodbye.

· The Other Guy Does It Better. Some customers constantly talk about your competition. The really brazen ones may even tell the competitor they’re playing a back-and-forth game with you. If this happens once, it may be worth working through, but again, if it’s happening often, this customer may not be worth the trouble.

Check the Math

When you’re dealing with a problem customer, take a look at the math to determine that customer’s monetary value. It may seem a bit uncaring, but math is cut and dried and makes decision-making far easier.

· Determine the customer lifetime value. Look at the customer segment and the average lifetime value of a customer within that segment. If a problem customer is in a low value segment, it’s an easy decision to let them go.

· Estimate the replacement cost. Losing an easy-to-replace customer isn’t necessarily a loss. Don’t keep a customer if retention costs more than securing a new one in the same segment.

If the math doesn’t provide a clear answer, consider the qualitative. Think about how the customer makes you or your employees feel or how hard you must work to keep them happy.

· Has this customer always been challenging/ dissatisfied? Chronically unhappy people usually don’t become satisfied after sufficient wooing. It’s pointless exhausting yourself to please others.

· Can they be converted? Say a customer is giving off a “maybe I’ll change my mind” vibe. If you sense a potential behavior change, retention efforts may be wise even if the math doesn’t say so up front.

· Does this customer mistreat your employees? This must be a consideration – always. If a customer is verbally abusive or harassing one of your employees, let them go in a hurry.

Firing a customer is not an easy decision. After you work hard to earn their business, the idea of cutting them loose may seem counter-intuitive. Check the math and consider the ramifications of keeping them around.

Sometimes a fond farewell is the wisest investment.

Get A Yardstick (altitudebranding.com)
Customers Value Good Business Relations (customer-relations.suite101.com)

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During tough economic times, over communicate with your customers

in Customer service, For CEOs

Jack Welsh, the former CEO of General Electric, recently delivered some good advice about business strategy during this economic tsunami.

You can check out the 4 minute video if you wish, but I’ll paraphrase Welch’s 3 points as follows:

Over communicate to every employee. In uncertain times, reassure employees of management’s plan to win.
Take care of your best people. Don’t let them get down. Plans made at the beginning of the year have been disrupted and should be revised.
Shore-up your balance sheet. This is the time to buy or bury your competition. With a healthy balance sheet, you can go on the offensive.

Few people will argue with the leadership Jack Welsh demonstrated while at the helm of GE. Welch is an aggressive, hard-charger and in hard times, recommends that you go on the offensive:“Do not sit under your desk and suck your thumb.”

For the Fortune 500, Jack Welch is dead-on, but for the Fortune 100,000, I’ll add one more critical element to his wisdom (to reinforce the most important asset of any business):

4. Over communicate with your existing customers.

If employees get “jumpy” during an economic downturn, how do you think your customers are feeling? If you think they’re questioning every purchase decision (past, present and future), you are right on the money.

So what should you do to keep your existing customers from jumping ship and keep loyalty a win/win proposition? HINT: Doing nothing is not an option.

BE PROACTIVE. Don’t wait for your best customers to defect. If you assume anything, assume the worst. It’s well documented that 64% of customers leave existing suppliers because of a feeling of indifference. Be honest with yourself. Over the last few years of focusing on new business, have you taken your existing customers for granted? Your first response will be “absolutely not,” but look at the business relationship from their perspective. Think about your top 10 customers and climb inside their shoes. How does it feel now?

Don’t complicate the issue any more than it already is. Communicate:

In writing–Letters are far more revered than emails. Personally addressed and signed letters trump the speed and convenience of email every time.
By phone–This is a support medium. It’s best not to use the phone as your primary tool, but as an engaging follow-up mechanism.
Person to person–The absolute most appreciated form of communication. What you say is important, but the fact that you invested personal one-on-one time to say it makes this the most important and interactive communication of all. Often, this is not practical for all customers, but it’s always the most valued.

Use all three to communicate your resolve to continue your business with them. And, you’ll find this often triggers additional dialog that can lead to more business.

If you’re waiting for the big reveal on the psychological code for getting into the heads and hearts of your customer, here it is:

Communicate with sincere appreciation,
Communicate with empathy–nurture versus sell,
Communicate often.

Jack Welch has an in-your-face way with words, but as you read between the lines, he’s saying be prudent, proactive and lead by innovating your way through this downturn. You and I can’t control the economy, but without increasing operating costs, we can control the volume and value of communications that keeps employees inspired, customers loyal, prospects engaged and competition sucking their thumbs.

This article is courtesy of:

Don Rigby
President, Integrated MARCOM, Inc.
Member GrowthANSWERS

Converting prospects into customers and customers into clients-for-life is the battle cry of Integrated MARCOM. For our clients, we execute this business fundamental by implementing a communication workflow system that personalizes and automates the delivery of one-to-one communications–in writing, by phone and face-to-face meetings.

Wise Words from Mr. Welch

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