Understanding your customer and retaining them as a loyal customer is even more critical in an economic downturn. Studies indicate it costs two to four times more to acquire a new customer than the annual cost of keeping an existing customer. Therefore it’s worth the small investment to determine if your customer is:
- A Promoter - can be your best advocate and can influence many other potential customers to come your way.
- A Detractor - can be your worst critic and can influence many other current and potential customers away from your company.
- A Passive - can be your biggest uncertainty and may influence other current and potential customers away from your company.
How do you find out? Ask Your Customer.
“How likely are you to recommend our company to a friend or colleague?” What is derived from this question is a numeric 0-10 score. Promoters answer a 10 or 9 (Highly Likely). Passives answer an 8 or 7 (Likely). Anything below a 6 is a Detractor. A Net Promoter Score (NPS*) is calculated by taking the % of Promoters and subtracting the % of Detractors,
Customers with a great experience can promote your company to others.
We all love the customers who are our raving fans. When working with our clients, we help them determine a plan to effectively leverage their Promoters. By leveraging I mean making it easier for Promoters to refer your company to others. Think about your Promoters as a consequential sales channel: a referral from a loyal customer (Promoter) has a 92% retention rate versus 68% for a customer acquired from advertising (source: Bill Bleuel, PhD, Graziadio Business Report).
Effectively leveraging Promoters may bolster the loyalty of the new customers they bring to your company and reduce your cost of acquiring new customers. If you’re intent on reducing costs, harnessing the power of your Promoters should be a focal point.
Customers with a bad experience can detract others from your company.
“The sting of a bad experience can cut so deep that it transforms an upset customer into an activist no longer interested in just a refund.” Source: BusinessWeek concluded that in 2007 consumers became empowered. Disgruntled consumers discovered a plethora of communication channels to voice their discontent. These channels are exploited to dissuade others from doing business with companies that provided poor service.
Poor service only? As we’ve mentioned in earlier articles, think more broadly about why customers become discontented and downright angry. It isn’t just due to poor customer service. Customers are looking for (and expecting) companies to deliver an “experience”. An experience encompasses the “physical” realm – the product and services provided - and the customer’s “emotional” wishes, wants, and needs.
Historically, a person with a positive customer experience would tell 3 people; a person with a bad customer experience would tell 10 people. However, newer estimates are that a defecting customer will tell between 10 to 20 people about their negative experience.
Consider how empowered your customers are now with the limitless reach of technologies. A recent example mentioned in the article “Virtual Water Cooler” by Michael Axelsen, conveys how a person with a bad customer experience Twittered 789 followers about her experience while still in the store. That conversation now shows up in internet searches. That negative experience is picked up, conveyed, and recorded for posterity.
Let’s face it: Detractors who are vocal get our attention. Most companies spend over 95% of their effort on reacting to problems and less than 5% proactively preventing problems If you’re concentrating only on reacting to what your Detractors are complaining about, well you are intrinsically only plugging the most obvious leaks in the dike. And you miss the critical opportunity to identify where the next big leaks are likely to occur.
Here are some sobering statistics:
- “Each year the average company will lose 10-15% of their customer base.”
- “84% of customers who leave do so because of bad service.”
- “A typical business only hears from 4% of its dissatisfied customers – the other 96% leave, 91% for good.”
(Source: Allegiance Newsletter: Bain & Company, Forum Corp., Jim Barnes, “Secrets of CRM”.)
When emotions are strong, either positive or negative, you have an opportunity to make a lasting positive impact on your customer, by:
1) Understanding the customer’s issue, and
2) Fixing the issue to their satisfaction.
You can shift Detractors to highly engaged Promoters. In some cases, just listening to the Detractor’s complaint and showing empathy is enough to shift them.
Customers who don’t feel engaged can be passive about your company.
Don’t make the mistake of discounting your customers who don’t fall in Promoter or Detractor categories. Customers with a non-experience, Passives, can be just as harmful to your company as those with strong like or dislike emotions. How so? This group poses, in many cases, a more challenging dilemma than Promoters and Detractors – how to gauge their needs and expectations, and how to engage them.
In general, the action plan to shift Passives to Promoters requires more probing dialog and inspired relationship planning. Although we can’t statistically prove this, we generally find Passives are looking for an experience but less able, or inclined, to voice their expectations. They are indifferent and therefore not interested in helping the company improve. And they are much more likely to say they are satisfied but defect, never to return.
What is a Cu$tomer Worth?
How many people are they likely to either encourage or discourage from doing business with you? What’s that worth?
- “Every customer you keep represents at least three that you don’t have to attract.”
- “A 5% improvement in retention rates can raise profits from 15 percent to 50 percent.”
(Source: Bill Bleuel, PhD., Graziadio Business Report.)
If you know who your Promoters are and how many new customers they may attract to your business, their net worth will increase significantly.
It’s a small investment with huge payoffs.
Ascertain who your Promoters, Passives, and Detractors are and, most importantly, take the appropriate action. What action? If you want to be successful retaining existing, and reducing the costs of acquiring new, customers you need to be deliberate and creative in leveraging your Promoters and shifting your Passives and Detractors to Promoters.
Sue Morgan
Principal
Beyond Philosophy
