Great Expectations: Customer Retention Basics

Great Expectations:
Retaining Existing Customers &
Engaging New Ones

Derek F Martin

Copyright, all rights reserved. Reprints: derekfmartin@gmail.com 1

Introduction: Derek F Martin
 Director Customer Engagement, Sales &
Retention, World Service, American Express

 Board of Directors, ATA

 http://BetterBusinessBanter.blogspot.com

 Next Conference: “Sales vs Service”
Loyalty USA in Las Vegas, October 2011

Copyright, all rights reserved. Reprints: derekfmartin@gma
2

Ice Breaker

 Turn to the person next to you and share an experience
where you consciously moved your business from one
company to another (merchant, supplier, restaurant, airline, credit
card or bank,…).

 What reasons drove you to leave?
 Has the new merchant/service met your expectations?

3

Agenda

1. Why Retention?
2. How Bad Is It?
3. How Did It Get To This?
4. What Can We Do About It?
5. Retention Tactics
6. The Best Defense is a Great Offense
7. Open Dialogue
4

1. Why Retention?
ROI – Customers are Assets1
 Cost of acquiring new customers is up to 5X cost to retain
current customers
 2% increase in customer retention = cutting costs by 10%
 A 5% reduction in attrition rate can increase profits by 20-
100%
 The customer profitability rate tends to increase over the
life of a retained customer

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Sources: 1. "Leading on the Edge of Chaos", Emmett C. Murphy and Mark A. Murphy

1. Why Retention? (continued)
COMPETITION – Growth and Market Share
 The average company loses 10-15% of its customers
each year2
 Competitive advantages – maintain market share,
customer feedback, reduce “detractors”
 Acquisition $’s are for growth

BRAND
 Brand Impact of Promoters vs Detractors

Sources: 2 American
Association for Quality, 2011 Copyright, all rights reserved. Reprints: derekfmartin@gma
6

Impact of Retention rate on Customer Lifetime Value (CLV)*

r m = margin or profit from a customer per period
{
CLV = m 1+ i – r } r = retention rate
i = discount rate

CLV
$500

$400

$300

$200

$100

$0
50% 60% 70% 80% 90%

Rate of Retention
Copyright,
*Source: Sunil Gupta, “Managing Customers all rights reserved. Reprints: derekfmartin@gma
7
as Investments,” Wharton 2005

2. How Bad Is It?

 Who is Leaving?
 How Fast?
 Cost of replacement?
 To Which Competitor?

8

Who is Leaving?
Top 10 Things You Want to Know about Attriting Customers
1. How Many: Attrition Rate & % total Customers
2. % of New Acquisition: Attrition/Total Customers
3. Estimated Customer Value: CLV
Customer Lifetime Value = m(r/1+i-r)

4. Customer Tenure: # of years or repurchases
5. Voluntary vs Involuntary: % Involuntary
6. How Many Were Saved? Save Rate
7. Why did they Leave? Voice of Customer, Verbatims, Social Forums
8. What are they Saying About You? Net Promoter
9. Where Did They Go? Competitive Marketshare
10. What Would It Take To Win Them Back? Competitive Marketshare
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3. How Did It Get To This?
 Diagnostic Metrics
 Voice of the Customer
 Production and Delivery Metrics
 Competitive Positioning
 Value Proposition (Utility & Price)
 Brand Deterioration/Mismatch

 Service Delivery
 Efficiency Metrics
 Process & Service Breakdowns

10

Diagnostic Metrics

 Voice of the Customer
 Feedback Survey
 Social Media & Forums
 Mystery Shopping
 Focus Groups

 Customer Metrics (a sampling)
 Satisfaction
 Net Promoter Score
 Repurchase or Retention Rate
 Referral
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Diagnostic Metrics

 Production and Delivery Metrics
 Open & Available
 Accurate
 On Time
 Request/Issue was solved (FCR)
 Defect Queue

12

Competitive Positioning
 Value Proposition: Product Utility & Price


Brand Deterioration / Mismatch
13

Service Delivery
 Efficiency Metrics: what matters to your Customers?

Source, JD Powers 2010 Credit Card Satisfaction Survey

 Process & Policy Breakdowns
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Pricing Sensitivity from Servicing Attributes
Pricing Sensitivity for Plastic Laminates
Price Increase
Product Attribute 2.0%
Product Line Scope 1.4%
Consistent Quality 0.4%
Finishing capabilities 0.2%
Service Attributes 4.4%
Accuracy of shipment to order 2.4%
Carrier Capability 0.8%
Handling of Rush Orders 0.6%
Problem Solving Helpfulness 0.4%
Notification when Shipment Delayed 0.2%
Value Attributes 0.6%
Reasonable payment time 0.6%
TOTAL PRICE IMPACT 7%
Source: Harvey N Schycon, “Measuring the Payoff from Improved Customer Service,” Prism 2001. Study of 25 attributes
impact on pricing, 2,000 businesses surveyed
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4. What Can We Do About It?
Step One: Triage: Save the best opportunities first
 Segment your Customer base by CLV to
Prioritize Treatment
Don’t Save Save no Offer Save w Offer
# Customers

LOW MED HIGH

CLV, $
16

Identify & Eliminate Friction Points
 Step Two: Address issues that most upset customers

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5. Retention Tactics: A Continuum
Passive Active Desperate

Demonstrate Recognize Reinforce Reward Beg &
Competence Cajole

• Error Free • Friction/ •Intuitive Service • Usage Based • Fee Free
Service Hassel Free
Service
• Profile Based •Tenure Based • Loss Leader
• Easy to Use • Customized Recommend- Offers
Recognition ations
•“Handcuff”
• Private, • Value based • Remind & • Pre-Attrition Contract
Secure, treatments Encourage Use Terms
Compliant

Covered in this workshop

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Reinforce

 Ask for the Business

 Features Vs Benefits

 Do The Math: spell out the Value Proposition to your customer

 Right Product vs Most Profitable Product

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Rewards
 Relevant Rapid Rewards:
$’s Spent NOT Miles Traveled
 Commensurate:
 CLV
 Strategic
10 = 1 20 = 1 $100 = $1
 Drive Desired Customer Behavior:
 Old ATM fees
 Starbucks 15 Stars /1 free coffee
1 star per purchase vs per cup
 Hassle Free:
 The dreaded Flight Voucher
 “Free” Magazine Subscription
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6. The Best Defense -
Is a Good Offense
 Product Value
 Customer Focused Organization
 Set & Meet Expectations
 Feed The Meter
 Constant Innovation & Competitive Disruption

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Customer Focused Organization

 Balanced Scorecard
 Shared Goals
 Respect and empower customer service
 Customer Council

22

Set & Meet Customer Expectations

 Be consistent

 Manage the truth, not avoid it

 Keep your promises and apologize when you don’t

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Feed The Meter

 Understand when and how key
Relationship Stages occur
 Actively engage your customer when or
even before these stages occur
Welcome Educate Engage Reward
Complexity Value Prop
Product Entice
Encourage Usage Excite Recognize

Prospect Purchase RePurchase Loyalty
Customer Lifecycle (Time or # repurchases)

24

Questions and Open Dialogue

25

Attrition Assessment Form Back

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2010 JD Powers Credit Card Industry

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Everyone makes mistakes, not everyone apologizes…

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Great Expectations: Customer Retention Basics

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