Churn, defection, leakage … call it what you may, lost customers translate into lost value for a company.
Some attrition is inevitable, of course — 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.
When looking at customer acquisition vs. customer retention, this is a false choice, as it’s never one or the other; every company 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 are typically are far higher than among established customers.
What’s a Company To Do?
Start by playing defense. I’m not suggesting that you take your eye off 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 and make fixing those weaknesses a top priority.
It’s much easier to get the organization jazzed up about plans to impress 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 patching compound of choice and try this three-part plan:
I know what you’re thinking: 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 stop immediate leakage. 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.
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 scathing complaint or ask to be contacted, use the closed-loop feedback process in your Voice of Customer (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) to defuse the situation.
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.
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. 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.
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.
Howard Lax is principal director of customer experience consulting at Forsta.