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Great Expectations:
Retaining Existing Customers &
Engaging New Ones


Derek F Martin



 Copyright, all rights reserved. Reprints: derekfmartin@gmail.com   1
Introduction: Derek F Martin
   Director Customer Engagement, Sales &
    Retention, World Service, American Express

   Board of Directors, ATA

   http://BetterBusinessBanter.blogspot.com

   Next Conference: “Sales vs Service”
    Loyalty USA in Las Vegas, October 2011

                  Copyright, all rights reserved. Reprints: derekfmartin@gma
                                                    2
Ice Breaker

   Turn to the person next to you and share an experience
    where you consciously moved your business from one
    company to another (merchant, supplier, restaurant, airline, credit
    card or bank,…).

   What reasons drove you to leave?
   Has the new merchant/service met your expectations?




                        Copyright, all rights reserved. Reprints: derekfmartin@gma
                                                          3
Agenda

1.   Why Retention?
2.   How Bad Is It?
3.   How Did It Get To This?
4.   What Can We Do About It?
5.   Retention Tactics
6.   The Best Defense is a Great Offense
7.   Open Dialogue
                Copyright, all rights reserved. Reprints: derekfmartin@gma
                                                  4
1. Why Retention?
ROI – Customers are Assets1
   Cost of acquiring new customers is up to 5X cost to retain
    current customers
   2% increase in customer retention = cutting costs by 10%
   A 5% reduction in attrition rate can increase profits by 20-
    100%
   The customer profitability rate tends to increase over the
    life of a retained customer


                                   Copyright, all rights reserved. Reprints: derekfmartin@gma
                                                                          5
    Sources: 1. "Leading on the Edge of Chaos", Emmett C. Murphy and Mark A. Murphy
1. Why Retention? (continued)
COMPETITION – Growth and Market Share
   The average company loses 10-15% of its customers
    each year2
   Competitive advantages – maintain market share,
    customer feedback, reduce “detractors”
   Acquisition $’s are for growth


BRAND
   Brand Impact of Promoters vs Detractors

    Sources: 2 American
    Association for Quality, 2011   Copyright, all rights reserved. Reprints: derekfmartin@gma
                                                                      6
Impact of Retention rate on Customer Lifetime Value (CLV)*


            r                           m = margin or profit from a customer per period
                 {
  CLV = m 1+ i – r              }       r = retention rate
                                        i = discount rate


       CLV
    $500


    $400


    $300


    $200


    $100


         $0
                     50%            60%               70%         80%         90%

                                    Rate of Retention
                                        Copyright,
*Source: Sunil Gupta, “Managing Customers            all rights reserved. Reprints: derekfmartin@gma
                                                                            7
as Investments,” Wharton 2005
2. How Bad Is It?

   Who is Leaving?
   How Fast?
   Cost of replacement?
   To Which Competitor?


                Copyright, all rights reserved. Reprints: derekfmartin@gma
                                                  8
Who is Leaving?
      Top 10 Things You Want to Know about Attriting Customers
1.    How Many: Attrition Rate & % total Customers
2.    % of New Acquisition: Attrition/Total Customers
3.    Estimated Customer Value: CLV
      Customer Lifetime Value = m(r/1+i-r)

4.    Customer Tenure: # of years or repurchases
5.    Voluntary vs Involuntary: % Involuntary
6.    How Many Were Saved? Save Rate
7.    Why did they Leave? Voice of Customer, Verbatims, Social Forums
8.    What are they Saying About You? Net Promoter
9.    Where Did They Go? Competitive Marketshare
10.   What Would It Take To Win Them Back? Competitive Marketshare
                             Copyright, all rights reserved. Reprints: derekfmartin@gma
                                                               9
3. How Did It Get To This?
   Diagnostic Metrics
     Voice     of the Customer
     Production        and Delivery Metrics
   Competitive Positioning
       Value Proposition (Utility & Price)
       Brand Deterioration/Mismatch

   Service Delivery
       Efficiency Metrics
       Process & Service Breakdowns



                             Copyright, all rights reserved. Reprints: derekfmartin@gma
                                                               10
Diagnostic Metrics

   Voice of the Customer
       Feedback Survey
       Social Media & Forums
       Mystery Shopping
       Focus Groups

   Customer Metrics (a sampling)
       Satisfaction
       Net Promoter Score
       Repurchase or Retention Rate
       Referral
                       Copyright, all rights reserved. Reprints: derekfmartin@gma
                                                         11
Diagnostic Metrics

   Production and Delivery Metrics
       Open & Available
       Accurate
       On Time
       Request/Issue was solved (FCR)
       Defect Queue




                       Copyright, all rights reserved. Reprints: derekfmartin@gma
                                                         12
Competitive Positioning
   Value Proposition: Product Utility & Price





    Brand Deterioration / Mismatch
                 Copyright, all rights reserved. Reprints: derekfmartin@gma
                                                   13
Service Delivery
   Efficiency Metrics: what matters to your Customers?




    Source, JD Powers 2010 Credit Card Satisfaction Survey



   Process & Policy Breakdowns
                   Copyright, all rights reserved.           Reprints: derekfmartin@gma
                                                               14
Pricing Sensitivity from Servicing Attributes
    Pricing Sensitivity for Plastic Laminates
                                                                                Price Increase
     Product Attribute                                                       2.0%
                                                     Product Line Scope                         1.4%
                                                      Consistent Quality                        0.4%
                                                    Finishing capabilities                      0.2%
     Service Attributes                                                      4.4%
                                         Accuracy of shipment to order                          2.4%
                                                       Carrier Capability                       0.8%
                                               Handling of Rush Orders                          0.6%
                                           Problem Solving Helpfulness                          0.4%
                                  Notification when Shipment Delayed                            0.2%
     Value Attributes                                                        0.6%
                                             Reasonable payment time                            0.6%
     TOTAL PRICE IMPACT                                                      7%
Source: Harvey N Schycon, “Measuring the Payoff from Improved Customer Service,” Prism 2001. Study of 25 attributes
impact on pricing, 2,000 businesses surveyed
                                         Copyright, all rights reserved. Reprints: derekfmartin@gma
                                                                           15
4. What Can We Do About It?
    Step One: Triage: Save the best opportunities first
             Segment your Customer base by CLV to
              Prioritize Treatment
                  Don’t Save       Save no Offer         Save w Offer
# Customers




                    LOW                 MED                  HIGH

                                         CLV, $
                               Copyright, all rights reserved. Reprints: derekfmartin@gma
                                                                 16
Identify & Eliminate Friction Points
   Step Two: Address issues that most upset customers




                    Copyright, all rights reserved. Reprints: derekfmartin@gma
                                                      17
5. Retention Tactics: A Continuum
        Passive                       Active                                 Desperate

Demonstrate        Recognize          Reinforce                Reward              Beg &
Competence                                                                         Cajole

• Error Free      • Friction/      •Intuitive Service      • Usage Based        • Fee Free
Service           Hassel Free
                  Service
                                   • Profile Based         •Tenure Based        • Loss Leader
• Easy to Use     • Customized     Recommend-                                   Offers
                  Recognition      ations
                                                                                •“Handcuff”
• Private,        • Value based    • Remind &              • Pre-Attrition      Contract
Secure,           treatments       Encourage Use                                Terms
Compliant


                                            Covered in this workshop

                             Copyright, all rights reserved. Reprints: derekfmartin@gma
                                                               18
Reinforce

   Ask for the Business

   Features Vs Benefits

   Do The Math: spell out the Value Proposition to your customer

   Right Product vs Most Profitable Product


                      Copyright, all rights reserved. Reprints: derekfmartin@gma
                                                        19
Rewards
   Relevant                         Rapid Rewards:
                        $’s Spent NOT Miles Traveled
   Commensurate:
       CLV
       Strategic
                          10 = 1           20 = 1             $100 = $1
   Drive Desired Customer Behavior:
       Old ATM fees
       Starbucks                    15 Stars /1 free coffee
                            1 star per purchase vs per cup
   Hassle Free:
       The dreaded Flight Voucher
       “Free” Magazine Subscription
                        Copyright, all rights reserved. Reprints: derekfmartin@gma
                                                          20
6. The Best Defense -
Is a Good Offense
   Product Value
   Customer Focused Organization
   Set & Meet Expectations
   Feed The Meter
   Constant Innovation & Competitive Disruption


                    Copyright, all rights reserved. Reprints: derekfmartin@gma
                                                      21
Customer Focused Organization



   Balanced Scorecard
   Shared Goals
   Respect and empower customer service
   Customer Council

               Copyright, all rights reserved. Reprints: derekfmartin@gma
                                                 22
Set & Meet Customer Expectations


   Be consistent


   Manage the truth, not avoid it


   Keep your promises and apologize when you don’t



                    Copyright, all rights reserved. Reprints: derekfmartin@gma
                                                      23
Feed The Meter

    Understand when and how key
     Relationship Stages occur
    Actively engage your customer when or
     even before these stages occur
                            Welcome        Educate          Engage         Reward
Complexity                                                 Value Prop
 Product        Entice
                                Encourage Usage               Excite      Recognize



         Prospect    Purchase                   RePurchase              Loyalty
                         Customer Lifecycle (Time or # repurchases)

                            Copyright, all rights reserved. Reprints: derekfmartin@gma
                                                              24
Questions and Open Dialogue




        Copyright, all rights reserved. Reprints: derekfmartin@gma
                                          25
Attrition Assessment Form                                   Back




             Copyright, all rights reserved. Reprints: derekfmartin@gma
                                               26
2010 JD Powers Credit Card Industry




             Copyright, all rights reserved. Reprints: derekfmartin@gma
                                               27
Everyone makes mistakes, not everyone apologizes…




                Copyright, all rights reserved. Reprints: derekfmartin@gma
                                                  28

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Great Expectations: Customer Retention Basics

  • 1. Great Expectations: Retaining Existing Customers & Engaging New Ones Derek F Martin Copyright, all rights reserved. Reprints: derekfmartin@gmail.com 1
  • 2. Introduction: Derek F Martin  Director Customer Engagement, Sales & Retention, World Service, American Express  Board of Directors, ATA  http://BetterBusinessBanter.blogspot.com  Next Conference: “Sales vs Service” Loyalty USA in Las Vegas, October 2011 Copyright, all rights reserved. Reprints: derekfmartin@gma 2
  • 3. Ice Breaker  Turn to the person next to you and share an experience where you consciously moved your business from one company to another (merchant, supplier, restaurant, airline, credit card or bank,…).  What reasons drove you to leave?  Has the new merchant/service met your expectations? Copyright, all rights reserved. Reprints: derekfmartin@gma 3
  • 4. Agenda 1. Why Retention? 2. How Bad Is It? 3. How Did It Get To This? 4. What Can We Do About It? 5. Retention Tactics 6. The Best Defense is a Great Offense 7. Open Dialogue Copyright, all rights reserved. Reprints: derekfmartin@gma 4
  • 5. 1. Why Retention? ROI – Customers are Assets1  Cost of acquiring new customers is up to 5X cost to retain current customers  2% increase in customer retention = cutting costs by 10%  A 5% reduction in attrition rate can increase profits by 20- 100%  The customer profitability rate tends to increase over the life of a retained customer Copyright, all rights reserved. Reprints: derekfmartin@gma 5 Sources: 1. "Leading on the Edge of Chaos", Emmett C. Murphy and Mark A. Murphy
  • 6. 1. Why Retention? (continued) COMPETITION – Growth and Market Share  The average company loses 10-15% of its customers each year2  Competitive advantages – maintain market share, customer feedback, reduce “detractors”  Acquisition $’s are for growth BRAND  Brand Impact of Promoters vs Detractors Sources: 2 American Association for Quality, 2011 Copyright, all rights reserved. Reprints: derekfmartin@gma 6
  • 7. Impact of Retention rate on Customer Lifetime Value (CLV)* r m = margin or profit from a customer per period { CLV = m 1+ i – r } r = retention rate i = discount rate CLV $500 $400 $300 $200 $100 $0 50% 60% 70% 80% 90% Rate of Retention Copyright, *Source: Sunil Gupta, “Managing Customers all rights reserved. Reprints: derekfmartin@gma 7 as Investments,” Wharton 2005
  • 8. 2. How Bad Is It?  Who is Leaving?  How Fast?  Cost of replacement?  To Which Competitor? Copyright, all rights reserved. Reprints: derekfmartin@gma 8
  • 9. Who is Leaving? Top 10 Things You Want to Know about Attriting Customers 1. How Many: Attrition Rate & % total Customers 2. % of New Acquisition: Attrition/Total Customers 3. Estimated Customer Value: CLV Customer Lifetime Value = m(r/1+i-r) 4. Customer Tenure: # of years or repurchases 5. Voluntary vs Involuntary: % Involuntary 6. How Many Were Saved? Save Rate 7. Why did they Leave? Voice of Customer, Verbatims, Social Forums 8. What are they Saying About You? Net Promoter 9. Where Did They Go? Competitive Marketshare 10. What Would It Take To Win Them Back? Competitive Marketshare Copyright, all rights reserved. Reprints: derekfmartin@gma 9
  • 10. 3. How Did It Get To This?  Diagnostic Metrics  Voice of the Customer  Production and Delivery Metrics  Competitive Positioning  Value Proposition (Utility & Price)  Brand Deterioration/Mismatch  Service Delivery  Efficiency Metrics  Process & Service Breakdowns Copyright, all rights reserved. Reprints: derekfmartin@gma 10
  • 11. Diagnostic Metrics  Voice of the Customer  Feedback Survey  Social Media & Forums  Mystery Shopping  Focus Groups  Customer Metrics (a sampling)  Satisfaction  Net Promoter Score  Repurchase or Retention Rate  Referral Copyright, all rights reserved. Reprints: derekfmartin@gma 11
  • 12. Diagnostic Metrics  Production and Delivery Metrics  Open & Available  Accurate  On Time  Request/Issue was solved (FCR)  Defect Queue Copyright, all rights reserved. Reprints: derekfmartin@gma 12
  • 13. Competitive Positioning  Value Proposition: Product Utility & Price  Brand Deterioration / Mismatch Copyright, all rights reserved. Reprints: derekfmartin@gma 13
  • 14. Service Delivery  Efficiency Metrics: what matters to your Customers? Source, JD Powers 2010 Credit Card Satisfaction Survey  Process & Policy Breakdowns Copyright, all rights reserved. Reprints: derekfmartin@gma 14
  • 15. Pricing Sensitivity from Servicing Attributes Pricing Sensitivity for Plastic Laminates Price Increase Product Attribute 2.0% Product Line Scope 1.4% Consistent Quality 0.4% Finishing capabilities 0.2% Service Attributes 4.4% Accuracy of shipment to order 2.4% Carrier Capability 0.8% Handling of Rush Orders 0.6% Problem Solving Helpfulness 0.4% Notification when Shipment Delayed 0.2% Value Attributes 0.6% Reasonable payment time 0.6% TOTAL PRICE IMPACT 7% Source: Harvey N Schycon, “Measuring the Payoff from Improved Customer Service,” Prism 2001. Study of 25 attributes impact on pricing, 2,000 businesses surveyed Copyright, all rights reserved. Reprints: derekfmartin@gma 15
  • 16. 4. What Can We Do About It? Step One: Triage: Save the best opportunities first  Segment your Customer base by CLV to Prioritize Treatment Don’t Save Save no Offer Save w Offer # Customers LOW MED HIGH CLV, $ Copyright, all rights reserved. Reprints: derekfmartin@gma 16
  • 17. Identify & Eliminate Friction Points  Step Two: Address issues that most upset customers Copyright, all rights reserved. Reprints: derekfmartin@gma 17
  • 18. 5. Retention Tactics: A Continuum Passive Active Desperate Demonstrate Recognize Reinforce Reward Beg & Competence Cajole • Error Free • Friction/ •Intuitive Service • Usage Based • Fee Free Service Hassel Free Service • Profile Based •Tenure Based • Loss Leader • Easy to Use • Customized Recommend- Offers Recognition ations •“Handcuff” • Private, • Value based • Remind & • Pre-Attrition Contract Secure, treatments Encourage Use Terms Compliant Covered in this workshop Copyright, all rights reserved. Reprints: derekfmartin@gma 18
  • 19. Reinforce  Ask for the Business  Features Vs Benefits  Do The Math: spell out the Value Proposition to your customer  Right Product vs Most Profitable Product Copyright, all rights reserved. Reprints: derekfmartin@gma 19
  • 20. Rewards  Relevant Rapid Rewards: $’s Spent NOT Miles Traveled  Commensurate:  CLV  Strategic 10 = 1 20 = 1 $100 = $1  Drive Desired Customer Behavior:  Old ATM fees  Starbucks 15 Stars /1 free coffee 1 star per purchase vs per cup  Hassle Free:  The dreaded Flight Voucher  “Free” Magazine Subscription Copyright, all rights reserved. Reprints: derekfmartin@gma 20
  • 21. 6. The Best Defense - Is a Good Offense  Product Value  Customer Focused Organization  Set & Meet Expectations  Feed The Meter  Constant Innovation & Competitive Disruption Copyright, all rights reserved. Reprints: derekfmartin@gma 21
  • 22. Customer Focused Organization  Balanced Scorecard  Shared Goals  Respect and empower customer service  Customer Council Copyright, all rights reserved. Reprints: derekfmartin@gma 22
  • 23. Set & Meet Customer Expectations  Be consistent  Manage the truth, not avoid it  Keep your promises and apologize when you don’t Copyright, all rights reserved. Reprints: derekfmartin@gma 23
  • 24. Feed The Meter  Understand when and how key Relationship Stages occur  Actively engage your customer when or even before these stages occur Welcome Educate Engage Reward Complexity Value Prop Product Entice Encourage Usage Excite Recognize Prospect Purchase RePurchase Loyalty Customer Lifecycle (Time or # repurchases) Copyright, all rights reserved. Reprints: derekfmartin@gma 24
  • 25. Questions and Open Dialogue Copyright, all rights reserved. Reprints: derekfmartin@gma 25
  • 26. Attrition Assessment Form Back Copyright, all rights reserved. Reprints: derekfmartin@gma 26
  • 27. 2010 JD Powers Credit Card Industry Copyright, all rights reserved. Reprints: derekfmartin@gma 27
  • 28. Everyone makes mistakes, not everyone apologizes… Copyright, all rights reserved. Reprints: derekfmartin@gma 28