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How to retain customers

The reasons why companies lose customers ('customer attrition' is the marketing jargon for this) are easy to identify in theory, particularly when you take the customer journey approach – examining all the stages in the recruitment process from first contact through to the time when the contract expires and the customer is free to move.

The reasons range from poor customer service in the contact centre or other channel, financial issues – such as affordability or whether the customer was sold the right proposition in the first place, technical issues (e.g. system or equipment failure) and the like.

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Attrition is rarely an instant process. It often takes place after several events. For example, a customer may call to query the price being charged, enter a dialogue with the contact centre agent about alternatives, commit to a lower cost contract, and then call again still unhappy with the contract. A customer regarded as being at risk of attrition (either because they have been identified as such through application of churn prediction model, or because of the severity of a problem raised in a call) may be escalated to an attrition prevention team, where new processes start.

Attrition can occur at all stages of the customer management cycle – even before acquisition e.g. the customer who joins with the intention of leaving. Attrition is caused by various factors. These include things we can't control, such as customer exit from the category (perhaps because their life-cycle moves on) – although even here we might be able to extend their use of the category.

Poor communication, service or customer experience is one of the main causes, as is poor management of the customer across different channels or media. We may also lose customers because of a weak retention proposition. Staff play a key role in retention, particularly in contact centres, so staff retention is correlated with customer retention – both ways.

Giving staff a tough retention job often creates staff attrition, while high staff attrition reduces the quality of contact centre work, increasing customer attrition. The Internet has affected customers' propensities to search for competitive propositions and to switch. Aggregator and switching sites are the latest wave of change in an Internet increasingly run by customers (the idea of Web 2.0).

Managing retention is just one aspect of managing the customer's journey, and part of this is managing the customer's experience. Customer experience management is now the focus of many marketing, sales and service projects, particular in companies with large contact centres or those using several different customer management channels.

Customer experience management focuses – or should focus - on how to manage everything that contributes to the customer's experience of your products, their associated services, the promotional campaigns through which they are offered, the brand within which they are provided, and things you control less directly – how the product or service is offered through or with third parties, expectations generated by you, by media coverage (by PR), by other customers (through word of mouth) and even by competitors.

It is an integrating perspective, crossing boundaries of marketing, sales and service, and of different channels of communication and distribution. It has a broader scope than contact management. But its integrating perspective is too easily abandoned. I often hear companies discussing how they manage customers' contact centre experience. When I hear that, I look out for disconnects between the contact centre and other channels, such as direct mail, branch service operations and so on.

However, focusing on customer experience - even just in a contact centre – is beneficial. It forces a strong focus on the customer. It reminds us that, particularly in service industries, most experience is not of marketing or sales efforts, but of operations.

Customer experience is part of the customer journey, which is a time slice through customer experience. Experiences are a sequence of events. There are many sequences or journeys, usually inter-related. The shortest include web visits, telephone enquiries, even opening direct mail. These may be part of a longer sequence – product or service acquisition, themselves part of a product use journey.

In the middle are contract-length journeys e.g. experience of a mobile phone company or car insurer for the contract period. At the other extreme are life-stage and lifetime journeys, such as the journeys many people have with life insurers, banks and retailers and other companies to which customers tend to be loyal for long periods (e.g. automotive, airline, holiday). One of the longest journeys of all is the category journey. The longer the journey, the closer the customer's feelings about it tend to be to their feelings about the brand.

Improving retention demands improved retention capability (data, systems, processes, measures etc.) and better deployed capability (e.g. consistent objectives, strategy, incentives). A balanced, steady programme of change seems to work better than dramatic progress in one or a few areas. Strong change management disciplines help – and these are less widespread than they should be – although in customer service departments they tend to be stronger than in marketing and sales.

Perhaps most important of all is self-awareness about the company's current position – not just how well it manages retention, but how well it manages change with retention as the objective, how well it develops and deploys its retention capability. Understanding is the key to good retention work – defining what retention is, understanding why it occurs and what can be done with it, particularly in a multi-channel, multi-product situation. Financial aspects are important – this means understanding the relationship between acquisition, retention and profit.

Prediction is important too, and for this good customer insight is required, using not only the classic data sets of database marketers, but also research, customer satisfaction analysis and customer-given data. This latter is particularly tricky, as you need to learn what data can reasonably be requested from different kinds of customers, and how much truth is told, rather than fiction.

Good retention practice depends on having a retention strategy which has been shown to be critically important to the business, owned by someone with the authority and budget to do something about it. This strategy identifies which customers or types of customers are worth retaining and which can be retained cost-effectively. The strategy must be properly implemented, which means that it is defined in a shared way, understood by all involved in its implementation, and is targeted in a way that is consistent with other policies (e.g. product sales volumes, profit), actionable, and measurable, with agreed governance in relation to other objectives (e.g. acquisition, customer development).

Retention is normally managed better in companies with a history of stability in marketing (product and customer) and service planning and delivery, across all channels. This is because it takes time to learn what works, and to test the lessons.

Professor Merlin Stone is a Director of Nowell Stone Ltd, an organisational development and consulting company specialising in database marketing, CRM, e-business and associated areas of customer service and IT, and of WCL, specialists in change management in the public and private sectors. He is a Founder Fellow of the Institute of Direct Marketing and a Fellow of the Chartered Institute of Marketing. He has also pursued a full academic career, involving senior posts at various universities.

Dak Liyanearachchi is Director of the Consumer Division of LBM

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