Prospecting sales terms like‘convert’,‘steal’,‘capture’, and‘conquer’,popularized among automotive companies, are frequently used to identify theprocess of bringing in new customers, especially those won from other suppliersand vendors. As marketing consultant and author, RobertTucker has stated,“Companies are often so concerned about attracting new customers that theydenigrate their unique value proposition to loyal customers.” They focus insteadon chasing down the next sale, competing principally on introductory offer orprice, and compensating employees more for generating new accounts than forkeeping existing customers happy, engaged and loyal.A multi-industry continental Europe study by ProfessorAdrian Payne (Universityof New SouthWales, and formerly of Cranfield University in the U.K.) showedthat 80% of companies spend too much of their marketing budget on customeracquisition. He calls these companiesAcquirers. Parenthetically, his study foundthat 10% spend too much on retention; another 10%, Profit Maximizers, seemto get the mix right. Why does this overemphasis and preoccupation happen?Professor Payne cites five reasons:1. Management believes that existing customers will be retained; thereforethe company needs to focus on acquisition.2. Companies experience high churn rates: leaky bucket syndrome.3. Customer acquisition is reported regularly to analysts, shareholders andsenior management; but churn rate may or may not be reported.4. The lifetime value profit impact of lost customers is not reviewed.5. Incentive compensation is often based on acquisition, not retention.The acquisition mindset of senior management and marketers is not likelyto change anytime soon.We can preach and preach about the advantagesrepresented in having a balanced, profit maximization approach to customermanagement and optimizing value over the life cycle. But as researchersand consultants, we had better be prepared to help acquisition-oriented andacquisition-obsessed companies in the real world.Truths and fallacies in attracting new customers
The drive to acquire customers often leads to twin challenges: a) superficialapproaches to customer targeting and qualifying, and b) limited understanding offactors that impact perceived value and behavior for the prospect that has yet tomake an initial purchase.Let us deal with the second challenge first: gaining insight into what representsvalue for prospective customers, and matching that to what the organizationoffers.While there is evidence that increasing attention is being given to learningwhat leverages customer retention, customer loyalty behavior, positive customerrelationships, and even customer risk and loss, there is relatively little researcharound what causes a prospect to become, or not become, a first-time customer.This is a particularly important, valuable, and often underapplied, element ofcustomer experience and customer value research.There are three main applications of customer management systems: sellingand sales force automation, marketing/communications and customer service.Implementation relies on integration of multiple sales and communicationchannels. However, for prospective customers the system is typically built onoutbound contact and streamlined lead management.The enterprise view ofcustomer management is focused on helping sales groups generate customers,and providing seamless support and service once customers are on board.Infrequently, companies attempt to identify 1) what prospective customers reallywant or need, or 2) how well companies themselves are positioned to addressand meet those wants and needs.As a result, customer management systems tend to be less effective at the frontend of a customer’s life cycle, the key first steps of the customer relationshipjourney. Process-oriented companies focus on creating benefit by keepingcustomers, optimizing their purchases over time and stemming rates of defectionor recovering lost customers.They rarely give enough attention to pre-purchaseprocesses or value creation.Everyone can repeat stories of being ignored, treated poorly or given incorrector insufficient information or service by badly trained, indifferent sales andservice staff, thus preventing them from making an initial purchase. Unreturnedphone calls, non-response to email messages, or poorly designed web sitesare also barriers to initial purchase.These are just some of the pre-customerprocess breakdowns in both b-to-b and b-to-c worlds that customer managementsystems could address but rarely do.Customer management systems neglect valuation of prospects ormatching the value proposition with customer needs
The other prospect challenge is that of customer suitability. Stating that allcustomers are not created equal is hardly an oversimplification. Like the pigsin Orwell’s Animal Farm, some customers are (much) more equal than others.No company has unlimited resources to service or support all their customersequally. Repeat buying power is everything when prospecting for potentialcustomers. Some customers are worth a great deal; some may become morevaluable over time; some may be valuable for a brief period but may be easilylured away; some are only seeking a price which would be disadvantageous forthe supplier; and some are never likely to become valuable.At minimum, companies need to segment their customers to determine howlong a customer will remain with them, how much revenue and profitability eachcustomer will contribute, how much and what kind of services the customershould receive, and what efforts will be needed to keep them whether they arenew, at risk or already lost.Also, if a company is changing product or servicefocus, i.e. beginning a new communication or frequency marketing program,decisions have to be made about which customers they want to retain.Companies are becoming smarter about keeping the customers they want orfiring less attractive customers through stepped-down or added-charge services.Now they have to invest more up-front to learn which potential customers willbe the most valuable over time.This goes beyond segmentation. It is almost pre-segmentation.In an industry like gaming where the level of customer migration is very high,it is imperative that casinos not only keep the players they want but target theright customers in the first place.They do this in a number of ways, includinggeo-demographic profiling. Many casinos make an extra effort to get back thehigh rollers they have lost. Customer research can be an essential element to theacquisition plan.Other industries are beginning to learn how to profile and focus on the bestprospects. In the retail automotive industry, potentially loyal new customerstake less time making their purchase decisions, consider fewer dealerships, areless price-driven, and rely less on magazine articles and other media and moreon previous experience and personal word-of-mouth. Dealers and automotivecompanies would be well advised to learn this about prospective customers at anearly point in the sales process.Who is a valuable prospect?
Advanced companies have begun to understand the financial and other values ofcustomer research, seeking customers who:• Need less direct motivation (incentive) or indirect motivation (promiseof support and committed resources) to purchase;• Have demonstrated more resistance to claims and attempts to lure themaway;• Are less price-sensitive, and place more value on intangible aspects ofdelivery;• Are more accepting of occasional value performance lapses and are lesslikely to accept alternatives if their brand/service is unavailable;• Demonstrate more positive attitudes about their brand, and actively andpositively communicate about their preferred brand or supplier.Similar attention should be paid to undesirable prospects. Companies shouldmake an effort to identify potential customers who may be an inappropriatematch.They may need too much service, have a history of being transitoryor require unreasonable price concessions. Pursuing customers with thesecharacteristics is a waste of resources.In all the haste to bring in customers, companies often forget to court the rightcustomers: those who represent the best long-term revenue potential, who willnot overtax the company’s customer service and support structure, and aremost likely to stay with the company.As the key means of exercising discipline,acquisition targeting and research certainly merit at least as much emphasis asthe preoccupation with identifying and converting prospects, and leveragingemployee behavior to drive customer loyalty and business outcomes.Every year, the average company loses 20 to 40 percent of its customers; and,for on-line companies the rate of customer churn can be significantly higher.When a high value repeat or long-time customer defects, the negative effect onprofit is substantial. The profit contribution of these mature customers is oftendramatically higher than for a new customer.Some firms may feel that the profitability deficit can be overcome by merelyrecruiting a new customer. But these high-value customers cannot be easilyreplaced. In most categories of business, one-third of customers account fortwo-thirds, or more, of sales volume. So, these customers are critical not onlyin terms of their profit contribution, but also because of their relatively smallnumber.Lost revenue isn’t the only problem represented by customer turnover. Whencustomers leave, their accumulated goodwill also departs. Each lost customercan, and often does, become an ambassador of bad news. People tend to sharetheir negative experiences – offline, and increasingly on the Internet – andthis represents well-documented and potentially strong‘badvocacy’ impact oncustomer decision-making behavior and can serve to undermine even the bestbusiness reputation and image.Lost customers can be highly attractive prospects, too!
Studies have found that one of several factors can drive defection: unsurfacedand unhandled complaints, or those that are handled poorly or slowly; bettervalue offered by competition; or what we call‘benign neglect’, simply taking thecustomer for granted, often coupled with broken promises. Any of these trust-impairing conditions make it easy for customers to look for better performanceelsewhere, and many do.In today’s highly competitive marketplace, no customer experience or customerloyalty program is completely successful; and despite a company’s best efforts,valuable customers will be lost. No question, the best approach for keepingthat from happening is a proactive, anticipatory relationship with customers andunderstanding, and acting, when they are believed to be at risk. But, these arebasic actions; and no company can afford to stop there. Retention and loyaltyefforts must be backed up with win-back programs that can return high-valuecustomers to their businesses.Market Probe has developed specialized research techniques to help companiesrecognize both the challenges associated with customer risk, the potential valueof re-acquired former customers, as well as attractive potential customers. Inthe following business-to-business example, our unique‘swing voter’ analysisapproach identified attractive price competitiveness as the principal reasonformer customers had done business with a supplier (blue bars); however therewere four key negative drivers (red bars) – usefulness of product deliverymethod, billing accuracy (a surrogate for lack of trust), corporate reputation(also a trust issue), and understanding the customer’s data information needs -which, combined, actually represented 78% (with some overlap due to multiplelow scores) driving churn behavior of the reasons they defected:
The company was then able to target attractive former customers, and keyon rebuilding the value proposition around both price and other elements ofdelivery seen as deficient.As noted, another issue is complaints, those that are identified (and poorlyresolved) and those that, for a variety of reasons, are never surfaced in the firstplace. In the business banking example below, it was clear that both unexpressedand ineffectively concluded issues were hurting key performance metrics.We’ve identified customer win-back as a major, strategic opportunity that hasgone largely unexploited. Why haven’t more companies made the effort torecover these attractive customers? One of the reasons is that they haven’texamined the potential revenue represented by these customers. A majorstudy has shown that companies have a much better chance of winning businessfrom lost customers than from new prospects. Research from that study showsthat there is a 20 to 40% probability of successfully selling to lost customerscompared to only a 5 to 20% probability of making a sale to new prospects.One continuity book club marketer, for instance, documented a net return oninvestment from re-contacting the expired list of their best customers that wasnearly ten times greater than the return from their most reliable prospect list.Another reason for not trying to win-back customers, beyond the effortrequired, is that companies don’t see any residual benefit for their organizations.Companies conducting recovery programs, however, report that contact anddialogue with these former customers has helped identify ways to improveproduct and service delivery, correct miscommunications, and obtain feedbackon new products and services. Additionally, analysis of win-back efforts hasenabled these companies to develop customer attrition, or at-risk profiles,pinpointing those customers most vulnerable to prospective defection and thusmost in need of retention and‘save’ initiatives.Complaint? Expressed? Handled? RecommendContinue touseNo - 55%Yes - 45%Yes - 60%Positive -55%Neutral -25%Negative -20%Yes - 40%82%87%53%21%62%55%89%91%54%17%66%61%
Despite this growing validation, customer win-back, like prospect research,remains an underutilized, and often neglected, opportunity for businessoutcome-centric insights; but, we see these as a next logical frontier in customerresearch application and growth of customer loyalty and customer experiencemanagement.Further, although contacting former customers is no one’s idea of fun, trackingenables accountability to be assigned and improvement priorities to beset. Recovery, or win-back, research is where the enterprise will find thosecustomers who made the decision to leave; and tracking the root causes ofcustomer problems has both valuable learning and profit opportunities.