Almost every company claims that they value their customers immensely, but do actions always follow these claims? In an age where consumer opinion can make or break businesses, most companies need to do a better job of prioritizing the source of their livelihood.
Despite these pressures, surprisingly few businesses focus on their customer retention and defection rates. A study by my company found that only 20% of businesses perform defection analysis to determine those customers that are most "at-risk." Furthermore, over half (56%) of businesses don’t have targeted programs in place to prevent customer defection.
As a result, organizations are unnecessarily reducing the lifetime value of their customers twofold: first by losing customers and thereby revenue to competitors, and again through the cost of re-acquiring defected customers. In today’s market, these consequences greatly outweigh the costs of creating and maintaining a smart customer defection program.
You Don’t Know What You’ve Got ‘Til It’s Gone
How much more expensive is it to reclaim lost customers than it is to retain a current customer? Forbes estimates that reclaiming customers can be seven times more expensive than simply retaining an existing customer. Multiplied by dozens, hundreds or thousands of customers, the financial impact of continued customer defection quickly become clear.
While many businesses are simply unaware of the benefits of customer defection analysis programs, others may be intimidated by the potential expense of such initiatives, especially small businesses. However, there are two important factors to consider: not only are small businesses least able to afford customer defection, but the costs of defection analysis should remain relatively fixed.
After an initial investment in building a customer data and analytics governance structure and setting up the appropriate feedback loops to run defection analysis, the program should be able to scale for the long-term. Over time, these programs take up a smaller portion of the total budget while still having a dramatic impact on your bottom line.
Defection Analysis to Facilitate the Cross-Sell
Of course, losing customers to competitors is not the only motivation businesses have in adopting defection analysis; the information yielded from these analytics can often increase the potential for cross selling. Rather than simply using defection research defensively to prevent customer attrition, forward-looking companies can use these propensity modeling-based insights to empower their sales and marketing efforts and increase revenue.
In the same way that any reasonable organization needs to be able to compare its expenses against its income in order to chart a course of action, businesses must also be able to make such calculations on specific customers — and on a consistent basis. Even amidst hostile market conditions, businesses that grow profits by minimizing defection can maximize their customers’ lifetime value. These calculations determine which customers are worth spending on to preserve loyalty, and which may not be wise investments.
Our research found that less than one-quarter of businesses perform defection analysis on a monthly or quarterly basis. While conducting defection analysis on a daily or weekly basis could become superfluous for many industries, the smartest companies make this more than an annual or bi-annual activity. Just as economic and employment trends are revaluated per quarter (or per month), defection patterns are variable and fluid enough to warrant frequent assessment.
Despite the scarcity of customer defection analysis programs today, they are bound to become a standard as organizations across industries are forced to adapt to sluggish sales growth, low switching costs and evolving consumer demands. Serving as the backbone of calculating a customer’s lifetime value, these insights are essential to remaining competitive. This is not to say that organizations that fail to adopt defection analysis programs will suffer catastrophe, but that they will struggle to thrive as competitors adopt more efficient, targeted processes.
Rather than write off analytics as a time-consuming Big Data byproduct, successful business leaders will see through to their bottom lines and realize that strength, in terms of customer retention and revenue, truly is in numbers.
Title image courtesy of Chantal de Bruijne (Shutterstock)
Editor's Note: Read more about customer retention in Chris Bucholtz's CRM: Customer Acquisition is Nice, But Retention is Key to ROI
About the Author
Dave Nash is a director in the Customer Experience practice of management and technology consulting firm West Monroe Partners.
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