Four key steps to customer retention

Customer retention may be tough, but it's a lot easier than winning new business – especially in this climate. Richard Higham of Mercuri International lists the four steps to success.

Sometimes it's tempting to be driven by a 'need' to find new opportunities, when the real priority is closer to home. If you have aggressive plans to acquire new customers as a response to the economic downturn, but are pouring water into a leaky bucket, then your customer strategy is flawed.

Some say that if an organisation's re-buy rate (that is, its contract renewal rate) is less than 70 per cent, it shouldn't be wasting time on a drive to acquire new customers; rather, it should be fixing the hole in its bucket first.

There are four steps to effective customer retention: segmentation, service, systems and selling. Together they deliver customer stability. And customer stability delivers profitability.

Step one: Segmentation

Successful sales organisations segment customers by their buying behaviour: are they loyal and relationship-based, value-seeking or fickle, transactional or price-driven? Treat each group differently and expect different responses. Constant stimulus and repetition of sales offers works best with fickle transaction-based customers. A more subtle, less 'hard sell' approach is needed with loyal and relationship-centred customers.

Step two: Service

High service standards help build a brick wall around your customers. They may be tempted away by crazy prices but your superior service levels will make it hard for them to leave. Make sure your service is as good as you think it is. Use customer surveys (but use them well) and conduct reviews with top customers. Do what one successful business I know does: each senior manager calls one customer a week simply to check that all is well and to tell them that they value their business. Good service sells repeat business.

Step three: Systems

Examine whether your systems are working for you or against you. Do they flag up soon-to-end contracts early enough? Is there a robust system in place to ensure that the customer is contacted? That the contact is followed up?

Think, too, about your reward systems. Are you paying people only to win new business, or are you also rewarding highly profitable, but less glamorous, customer retention activity?

Step four: Selling

Do you still actively sell to existing customers? It's ironic that no one knows a customer better than their existing providers, yet all too often we fail to sell to existing customers. We don't want to seem greedy, or we worry it might damage the relationship. Often, we'll take the view that we've 'already got what we came for'. Yet, customers expect us to come to them with new ideas and new offers. If we've been doing our job properly they'll want to stay with us. So why surrender that hard-won ground to the competition?

Customer retention is the key to profit and business stability, but it's often (still) overlooked. Review your segmentation, your service, your systems and your selling, and seize the opportunities within your grasp.

Richard Higham is international sector head, financial and professional services, at sales growth consultancy Mercuri International. This article first appeared on MyCustomer.com.

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