Focus on customer retention

Dr. Marilyn M. Helms – March 32, 2002

We know it is cheaper to keep a current customer than to attract new customers. Many have quantified the cost of attracting new customers as five times more expensive than retaining existing ones. Costs include advertising, promotion, marketing, and even time and energy to meet and search for new customers. Knowing that keeping or retaining customers is so vital (and inexpensive) for businesses, the question becomes, do you know your customer loyalty percentage? Are you aware of trends in your customer retention rates?

Considering the cost, time, and effort required growing new customers, it makes financial sense to consider growing your business by focusing on the needs of existing clients. On average, US companies lose half their customers every five years. Is this true for you? Is your percentage below average?

Do you want to know why customers are leaving? You should. Their current and future business goes with them. For example, if a typical shopper spends $50 each week at the grocery store, you lost $50 this week, a modest amount. But wait, it the customer lives in the Dalton area and would have shopped with your store for 15 years, the store’s loss would be $39,000 in sales (not counting adjustments for cost increases and inflation).

What is turning customers away from your business? How could you make it easier, faster or cheaper for them to remain? First you need simply to ask the customers themselves. What do current customers like and dislike about your business, your products, or your services? Find out by asking them. Gather a group of your customers together in a focus group, perhaps over a meal and record their thoughts and brainstorm improvement ideas. Tell them you value their business and want to serve them, and inquire what you can do to increase their satisfaction and retain their business. In a brief one or two-hour session, with a representative cores-section of your customers, you may just find the clues to their retention. Adding these to the top of your “to-do” list for immediate and on-going attention may be all that is needed.

What could you learn from these customers?

· Maybe your quality is less than competitors,

· Maybe your prices are too high,

· Maybe your service staff is unprofessional or late,

· Maybe your employees aren’t knowledgeable and have less than a courteous, caring attitude. Maybe your hours are limiting, your vice mail system confusing, or you facility is dirty and untidy, or

· Maybe you lack enough outside lighting for evening visits.

Two other focus groups are needed to round out your understanding of retention issues. While we typically do an HR exit interview with employees who change jobs and leave our company, we seldom do an exit interview with customers. Why did they choose a competitor? If you follow-up with customers as soon as possible after they leave, you will not only gather current information but may be given an opportunity to correct the customer’s problem and reverse the situation.

Finally, interviewing individuals who are not currently your customers can give you a different kind of information that is a benchmark of your competitors. What are competitors doing better? Can you adopt or emulate these practices, policies, or procedures?

In truth, few organizations gather such information or even track retention rates. Most software can readily print a customer list and detail of customer sales activity by date. Sales representatives can also identify patterns for customers in their region or territories. Shopper or affinity cards that customers present each time they make a purchase easily tracks buying trends. Such cards or key ring fobs are now available at most retailers and are almost a requirement to shop at the establishments. Web site information of purchases by customers also points to buying habits. Use this data to learn what may be driving customers away. Good luck.

Dr. Marilyn M. Helms is the Sesquicentennial Endowed Chair and Professor of Management at Dalton State College and welcomes your comments at mhelms@em.daltonstate.edu or 706-272-2600.