Many companies have room for improvement in their approaches to customer retention. The reason for this is that it is often difficult to differentiate customers by value, identify valuable customers that are at-risk, or take appropriate steps to retain them.In highly competitive industries such as communications and financial services, the ability to optimally differentiate a customer base can mean the difference between an average and a highly successful retention strategy.
Mature organizations recognize that some at-risk customers are worth more than others – and put greater effort into ensuring that they are retained. In addition, they understand that there are many different reasons why a customer may leave. So they identify the root causes behind at-risk customers and then make the organizational and operational improvements necessary to ensure retention issues are smartly handled. They combine advanced analytics with segmentation and lifetime value assessments to determine where hidden value lies. They ask: Why are customers leaving? How do we retain them? And, How much should we spend to retain them?
There is wide recognition that it is far more expensive to acquire a new customer than to enhance the value of an existing one. At Customer Chemistry, we drive enduring profitability and growth into our clients’ existing customer bases by improving and optimizing measures of customer satisfaction and loyalty.
Critical Success Factors
Consider the Critical Success Factors associated with retaining the right customers:
- Target at-risk customers. In order to retain valuable customers, the necessary analytical capabilities must be implemented to identify and target them with relevant retention offers and treatments. This process begins with identifying the specific root causes of each customer’s challenge and/or dissatisfiers, not just superficial issues or data points.
- Assess the profitability potential of customers to determine appropriate treatments. The level of effort that should be put into retaining customers should be proportional to their future value to the organization. This means that it is important to analyze customer profitability and lifetime value on a continuous basis, ranking customers in terms of their likely financial impact.
- Analyze the impact of various retention efforts. To ensure that retention initiatives are successful, it is necessary to understand their ROI and impact on relevant financial metrics. It is also important to understand the long-term business impact of retention efforts based on the type and quality of customers being retained.
Customer Chemistry’s Approach
Depending on a one-size-fits-all retention campaign strategy to hold retain customers often results in overlooking high value customers. When high-value customers are treated like the general customer population, and without specific focus and care, less than optimal retention will result. In fact, many of these profitable customers will defect due to lack of special focus and care.
As is the case with many companies, high value customers leave when they do not receive specialized care, and are then replaced by new customers with potentially unknown value. Replacing customers is extremely expensive and leads to continued uncertainty as to the nature and composure of high-value customers within the customer base.
Customer Chemistry specializes in helping companies adopt an holistic view of the net effects of their retention initiatives. This approach helps ensure that the customers which drive profitability and contribute the most shareholder value are being actively retained, while enhancing customer loyalty by addressing the root causes of their indifference or dissatisfaction.
The example below provides a comparison of how Customer Chemistry’s Marketing Performance Improvement framework optimizes retention treatment and, ultimately, improves high-value customer retention. In this example, high-value customers are identified and targeted with specific retention campaigns, resulting in improved retention and improved overall profitability to the company.
| Variable | Typical Approach | CC Approach |
|---|---|---|
| High-Value At-Risk Customer Population | 100,00 | |
| Average Profit per Customer (monthly) | $22 | |
| Lifetime Estimate (months) | 20 | |
| Discount Rate | 10% | |
| Estimated CLV per Customer in Population | $403.74 | |
| Offer per Customer | $100.00 | $200.00 |
| Retention Rate | 8.00% | 15.00% |
| Simple Future Profit per Customer | $303.74 | $203.74 |
| Unit Cost to Replace Lost Customers | $400.00 | |
| Total Cost to Replace Lost Customers | $2,800,000.00 | $0.00 |
| Total Future Profit | ($370,044.81) | $3,056,165.97 |
Customer Chemistry draws on proven business expertise, deep industry experience and winning practices in marketing analysis, analytics and execution to help our clients optimize profitable growth. If you are exploring ways to profitably drive customer acquisition, contact one of senior client representatives today at 571-643-0840.