Blogs

It may be a trite and overused metaphor, but everyone knows what I am talking about: lost customers. Churn, defection, leakage – call it what you may, lost customers translate into lost value for a company. Lost customers represent lost profits and cash flow today and tomorrow, depressing the overall market value of the firm.  

 Some attrition is inevitable – customers die or go out of business, they move out of your market footprint, they no longer need certain goods or services. Most leakage, however, is defection; your now former customers are buying what they need from someone else. (Some commentators will say that the loss of unprofitable customers actually is good, but let’s leave that scenario for another day.)

 Acquisition vs. retention

This is a false choice, as it’s never customer acquisition or customer retention: every firm must pursue both paths for viability and growth. That said, acquiring new customers usually is costly. In many industries it takes two years or longer to recover acquisition costs. Attrition rates among new customers, moreover, typically are far higher than among established customers. Replacing lost customers is, in short, expensive.

 For most companies, 90%-95% or even more of their 2022 revenue will come from the customers they retain from 2021. This rate of retention is essential for growth and profitability: imagine what your business would look like if you had to replace 20%, 30% or more of your customers year-over-year? Even in auto insurance, an industry with self-destructive cut-throat competition, retention rates hover near 85% for most players.

 What’s a company to do?

Start by playing defense. I’m not suggesting that you take your eye off of what delights customers, the drivers of great experiences and strong relationships. But start paying more attention to what is disappointing customers, the “downside drivers” that are the causes of poor customer experiences and weakened relationships. Sure, bolster and promote your strengths, but recognize that you are losing customers because of your weaknesses, so you damn-well better make fixing those weaknesses a top priority.

 It’s much easier to get the organization jazzed up about plans to WOW customers than efforts to avoid disappointments and mitigate risks. Offense is sexier than defense. But the leaks stem from defensive failures. Patching those leaks, moreover, often carries a better pay-off than further improving on areas of strength.

 To address the challenge, get out your Flex Seal or patching compound of choice and try this three-part plan: Satisfice. Remediate. Improve.

 Satisfice

I’m sure to take some flak on this one: satisfice? Why set the bar so low? Why not aim to satisfy or even delight?

 Satisficing (that is, finding the minimally acceptable performance threshold) is a necessary first step to staunch the bleeding. Identify the drivers of disappointment, your vulnerabilities, and determine the minimum performance standards required by customers. Delivering against a minimalist standard may not be a noble, lofty goal that earns customer raves, but it accomplishes the critical purpose of reducing customer disappointments. That’s the starting point.

 Remediate

So you set the minimum standards to at least satisfice. There will, of course, still be some performance failures even against the satisficing level, as well as other customers who express disappointment even though the threshold standard is met. Now it’s time to remediate.

 Don’t just respond to customers who send a nasty-gram of some sort or ask to be contacted, use the closed-loop feedback process in your VoC program to address customer problems. If/when a customer expresses a problem or their assessment of your performance falls below even the satisficing level, it’s time to intervene. Don’t let the issue fester; take steps to mitigate your risks – contact the customer, hear their concerns, express your concern and empathy, take responsibility and palliative action (as appropriate), defuse the situation.

 Somewhere along the customer journey the customer stumbled and skinned a knee. Step in with salve and a band-aid to try to make a bad situation a little better.

 Improve

You set the minimum bar and have a process for mitigating risk for performance failures with individual customers. Now it’s time to raise the bar and deliver a stronger performance.

 Change your goals from an “average of X” to the “share of customers who fall below (or meet) X.” Averages may look good, but customers don’t experience the average; they experience the “variance.” That is, customers go through the specific conditions of the experience your company delivers to them relative to their expectations, the average be damned.

 One way to skinny-down the performance failures is to augment your VoC process with employee feedback specifically designed to solve issues instead of fix wounds. The closed-loop process is great, but it’s akin to fixing a car after it hits a pothole. What if the focus instead was on repairing the pothole before the accident happened?

 We use something we call VoC/E as a way to institutionalize a process of soliciting employee feedback to solve issues and avoid future problems. Yes, continue to close the loop and heal customer wounds. But once multiple customers incur the same wound, activate VoC/E to collect direct feedback from frontline employees involved in the problem area regarding how to put in place a permanent change to avoid the same problem occurring again (and again, and . . . ). Vet these ideas with other employees in similar roles to identify the best solution.

Wash. Rinse. Repeat.

Every bucket will spring leaks. There always will be performance failures. If nothing else, rising customer expectations and competitive pressures will breed disappointments.  So be prepared with your patching strategy to reduce churn: satisfice, remediate, improve.