"Our Take" - Customer Retention

(Past Editions by: Date, Title, Topic)

 
About "Our Take" 
"Our Take" is a collection of daily vignettes covering a wide range of CRM topics. It's an attempt to add our own spin to the world of CRM. We will use the column to share our perspectives, opinions, epiphanies, web nuggets, or quite frankly anything that moves us. Get ready to expect the unexpected. And, don't be shy about sharing your thoughts.
 
 
9/1/05 - Customer Retention Gone Wrong
Tell me how I'm measured and I'll tell you how I'll act. That's the story with AOL. It turns out AOL customer service reps were given financial incentives to prevent subscribers from leaving the business.
 
Although AOL defended their customer retention program, they agreed to pay a $1.25M fine and change the practice. What was the practice? AOL customer representatives received bonuses of thousands of dollars if they managed to retain about half of the people who called trying to cancel service -- and that led some employees to fail to process such requests.
 
This is a classic case of having the right objective (retain customers that want to defect) but doing it in the wrong way (failing to process requests). It's certainly legitimate to point out potentially overlooked features that might keep customers in the fold but incentives that ignore customer wishes is just plain wrong. Care to share your experience with customer retention gone wrong?
 
Gary Lemke, Publisher
(Share your thoughts)
 
6/5/06 - Recruiting or Retaining: Which is Harder?
New week, new thought. Consider the following: if you have a pot of money to spend on customers, how would you divide it up between investing in getting new customers versus investing in keeping your current customers? Unconsciously, that is what most organizations do every day.
 
You may not realize it but budget decisions dividing money between recruiting and retention say quite a bit about an organization and how it views customers. Is it easier to find new customers than to keep the existing ones "in the fold" or is there a better return on your investment by taking the extra steps to make them a recurring revenue source?
 
Let me propose the following exercise: determine the ratio of revenue from new customers versus existing customers and compare that to the ratio of money spent of customer acquisition versus retention. How do the two ratios correlate? Let me know if this gives you new insight into your organization's focus.
 
Gary Lemke, Publisher
(Share your thoughts)
 
6/6/06 - Recruiting Versus Retaining Customers
Yesterday, I challenged readers to understand the ratio of investment in recruiting new customers versus retaining existing customers. The challenged prompted many responses around a common rule of thumb that finding a new customer costs more than retaining an existing one. Figures range wildly depending on the business model but new customer acquisition can cost upward of ten times as much as selling to an existing customer.
 
So today's challenge to you is to understand the cost of acquiring a new customer versus retaining an existing in the context of your business model. I realize that I've now given you two very large costing tasks in the last two days and I realize the effort will take much longer.
 
But understanding the cost ratio of recruiting versus retention and the current budget allocations associated with the two acts will provide powerful ammunition to make sure you are spending your customer focused dollars (euros, yen, etc.) properly. Today is a great day to start.
 
Gary Lemke, Publisher
(Share your thoughts)
 
6/7/06 - Do "Switching Costs" Count as Good Retention Strategy?
This week we have been exploring the idea of appropriating corporate budgets between investments to acquire customers versus investments to retain customers. One retention strategy that many companies employ involves the creation of switching costs.
 
Switching costs are those hurdles placed in front of customers to make it more difficult to switch. A few examples include electronic bill pay from the banks, annual contracts from the cell phone companies, award programs, etc. But do these clever programs belong in the retention category?
 
To tell the difference, you have to make a value judgment. Here's the distinction I make: If the program adds value to your products/services without "handcuffs," it is a retention program. If it makes it more frustrating for a customer to leave a vendor, it is not a retention program but merely a ploy to keep lazy customers unwilling to invest in swapping vendors.
 
Gary Lemke, Publisher
(Share your thoughts)
 
6/12/06 - The Retention Challenge
In the last week, this column has been home to a lively dialog on allocating budget for customer activities. Specifically, how much should be spent to get new customers versus how much to spend to keep existing customers. One reader wrote:
 
"I challenge companies to state what their retention budget is on an annual basis. Most companies I see will tell you they invest in retention, but they don't create a budget and business plan on how to retain customers, so in the end the retention activity becomes a spontaneous activity versus a planned one."
 
I would like to echo those thoughts and say that I find that retention analysis is often a reaction to someone asking the retention question rather than a planned, on-going metric. Do you have a story about how customer retention is done in your company?
 
Gary Lemke, Publisher
(Share your thoughts)
 
6/21/06 - The Silver Bullet of Customer Retention
Recently, I was asked to speak to a group of CEOs about one of my favorite topics - customer retention. I am always happy to share my perspectives garnered from experience. I had originally agreed on the premise that I would talk about the business case for customer retention and the methodology to improve it based on analytics and business processes. Of course, there is a bit of retention culture that often enters the mix.
 
However, an interesting thing happened along the way. The organizers came back and suggested that I skip the focus on business case, methodology and culture in order to dwell on a "couple silver bullets." In other words, simply tell the audience what to do to improve customer retention. I immediately declined the speaking opportunity.
 
Why? Because my experience tells me that every business is unique and the retention strategies of one company cannot be universally applied to others. To suggest the existence of generally applicable best practices ignores the realities of each business and the opportunity for value differentiation. We all wish there was a silver bullet but if there were it would already be in use by every organization. Wouldn't it?
 
Gary Lemke, Publisher
(Share your thoughts)
 
6/23/06 - Retention Silver Bullets
Earlier this week I shared a story about declining a speaking "gig" because the organizers changed the customer retention topic from strategy, process, and analysis to simply sharing retention “silver bullets.” In other words, “Hey, just give me the answer!”
 
My reason for declining was simple: there are no easy answers because every business has unique customer challenges. That’s like telling someone the answer to a question without telling them how to figure out the question for themselves. What have they learned? Nothing. More importantly, they won’t know how to use or implement the answer.
 
The topic spawned a deluge of reader input and I thought I would share some of it with you. Reader consensus was a big affirmation that I was wise to decline the speaking opportunity. A case can be made that perhaps I should have agreed to speak and used the opportunity to explain why silver bullets are folly and focus on the business strategy of retention anyway. However, I felt that re-adjusting audience expectations on-the-fly was not fair to the organizers, the audience, or me. I'll share more thoughts next week.
 
Gary Lemke, Publisher
(Share your thoughts)
 
7/7/06 - Budgeting for Retention and Acquisition
Recently, we discussed how much an organization should allocate to retaining customers versus acquiring new ones. I didn't get much feedback on the actual break down between the two as measured in the real world.
 
I suspect the lack of hard figures has to do with one of two things. Either people don't want to share those figures or they don't think of their customer facing budgets in term of those two objectives. My guess is that most people don't measure the mix that way.
 
One mobile phone operator responded by saying they actively take retention budgets into account in their total customer sales costs. They have well defined quarterly forecast/budget processes for customer acquisition versus retention costs, with a 70%-30% balance between the two. How does that mix sound to you?
 
Gary Lemke, Publisher
(Share your thoughts)