Cheaper to keep a customer?

Not necessarily.

As part of our weekly #custserv Twitter chat last night (if you haven’t checked it out, and you’re itching for some great idea exchange on the topic, tune in to that hashtag Tuesday nights at 9pm ET), Marsha Collier, one of the hosts of the chat, pondered why companies continue to apparently spend more time, energy and money acquiring new customers versus retaining existing customers.

Well, it’s because giving profitable customers a reason to continue doing business with you is really hard work.  And when we don’t do those difficult things well; like delivering a superior experience, listening to our customers, committing to action and exceeding expectations, we are marginalized in our customers’ minds and the next transaction, if we’re even given the opportunity, boils down to a discussion about price.  And, with the knowledge your customer has gained about you, with the negotiating ammo you’ve provided him by not focusing on customer service, keeping that customer’s business is going to cost you, dearly.  

Take the following scenario:

You go to a trade show.  You find out one of your competitor’s best customers is looking for a new supplier.  You meet. You dazzle him with the “grass is greener” pitch at a time when he still can’t see the man behind the curtain (the dysfunction of your customer service).  You negotiate a decent deal.

Fast forward, to contract renewal time.  You’ve missed SLA’s.  Your technical support group has experienced a lot of turnover.  Your customer has had to escalate many issues that should have been handled by front line customer service reps.  Your invoicing is incorrect more often than it is correct.  Then, you sit down to ask for that customer’s continued business.  What do you think its going to take to keep that business?  Among other things, if you’re even given the chance, is a price point a LOT lower than was in the original agreement and other concessions that will erode those margins your customer granted you in the first place.

Meanwhile, during the term of that contract, you’re hottest sales people have been out there winning new customers, churning and burning, moving inventory and takin’ names.  You’ve rewarded those sales people for winning “new logos”.   And, within your sales and support organizations, you’ve handed over the management of your existing customers to your most junior account managers.

So, while conventional wisdom tells us, if done correctly, its ‘cheaper’ to keep a good profitable customer than go out and continually find new ones, its not easier.

And given the choice, most of us will choose easier.

Comments

  1. Great point Barry!

    Unfortunately, some companies don't seem to want to do the hard work and are content with gaining new customers and living with the churn.

    It does cost some money to keep those profitable customers and make sure that they stay profitable. The point is that the expense is less than gaining new ones. Albeit, it isn't necessarily obvious to most.

    Investing in changing the corporate culture and adding resources to "cost centers" usually "feels" expensive to executives. But when you look at the margins, it's usually a no-brainer.

    Support contracts often have margins well above 50% (some are over 80%). Reducing it by one or two percent to keep those customers happy sounds like a good deal when the initial sale has a margin of 20% (or much less).

    Cheers
    Eric
    @ericjacques

  2. Totally agree Barry.

    Typically performance and rewards are all structured around new business. If customer experience does not shape what a company measures and if it is not woven into their foundation, culture and values, then existing customer will continue to be left behind.

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  4. (Resubmitting comment for minor edits)

    I totally agree. Companies trip over themselves to bring in new customer, offer promotions to get them hooked on every service they can. But when something goes wrong the customer calls in for support and gets the most disengaged cynical kid-off-the-street as the company's representative.

    Attitude in support groups is a glaring issue. The agents themselves feel unappreciated, get into altercations with their customers or feel alienated from other departments in the company. Are these the people you want talking to your customers?

    The current generation of frontline agents are culled from the geek culture, so they're usually already antisocial and prefer to interact with customers from behind the safety of a computer screen. Not only that, but they can have an air of superiority because they know how to troubleshoot. And those of us who're genuinely passionate about service end up looking like jerks for trying to be proactive.

    There's no reward stucture for providing good service other than the customer themselves genuinely thanking you, and that's not enough to warm the hearts of some of these agents. I feel the burn personally, because I have customers coming to me with the expectation that I'm about to talk down to them or treat them like crap just like every other phone agent in every other company. I try to turn that expectation around one call at a time, but that only lasts so long as the customer doesn't come back and get a bad agent on their next call.

    Something needs to be done to change the attitude on call center floors everywhere, but that old mindset will be hard to root out in most companies. Any attempts to get an agent excited for their job the way you can with a sales team will be met with cynicism. The best thing that can be done is bring in new blood, people with a positive attitude to begin with. Train for the technical skills later, and focus on the important things first – the people skills that our current generation sorely lacks.

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