Is one of your primary goals as a new business owner to “satisfy” your targeted customers? Well, if it is you are probably headed for disaster because as it turns out merely “satisfied customers” generally don’t come back to make repeat purchases. According to a Harvard Graduate School study “62% of supposedly “satisfied customers” do not repurchase from the same source” (Kick-Ass Business and Marketing Secrets: How to Blitz Competition, Bob Pritchard). So after all the hard work and funding you invested to acquire a group of targeted customers there is a high probability that over half of them will seek other sources of supply on future purchases. So, what are the primary reasons that “satisfied customers” seek other sources and what can you do about it?
As is the case with many situations within the business environment there is usually an 80 / 20 cause and effect relationship to consider. According to a Rockefeller Institute study the following are the primary reasons that customers switch sources of supply: 9% are attracted by competitors; 14% leave because they are dissatisfied; a whopping 68% of customers switch because they think the company they buy from doesn’t care about them. So, the most significant problem isn’t that companies supply poor products and services, it’s that they are at best indifferent about customer service. Think about it for a minute. If approximately 62 out of 100 customers switch sources of supply and 68% of those that switch do so because they think you don’t care about them, then that means 42 (62 x 68% = 42) out of 100 customers that you acquire might purchase from someone else next time. Can you afford to let that happen? Once you do the math of how much profitable growth the 42 out of 100 customers represent you might want to re-consider the type of relationship you have with your customers. Just think if you could retain even half of the 42 that might leave you.
What practical action can you take to reduce the probability of losing 42% of the customers that you acquire? Make a list of your most significant targeted customer segments. For each of them identify the type of relationship you have, or plan to have, with them (personal assistance, self-service, automated service, on-line communities, or co-creation – which is jointly designing products and services with your customers) within three general phases of the relationship – customer acquisition, customer retention, and up-selling (Business Model Model Generation, Osterwalder and Pigneur). Once you identify the type of relationships you have, or plan to have with your customers you should ensure you have a documented and funded plan to retain your targeted customers once you acquire them. If you discover you don’t have a funded customer retention plan, then fix that problem because you can’t afford to replace 42 out of 100 acquired customers. Additionally, do you have a funded plan in place to develop and supply new product and / or service offerings (up-sell)? Almost all new business owners think through how they want to acquire customers, but very few develop and fund an action plan to retain and up-sell their customers and that’s where the gold is buried.
As you further develop your customer service plan Prichard suggests you assess whether your service levels are: 1. basic; 2. expected; 3. desired; 4. unexpected. Every good company endeavors to deliver on the first three levels of customer service, but exceptional ones deliver unexpected customer service and create a significant advantage over competitors. Do you want another reason to offer unexpected levels of customer service? A recent “PriceWaterhouseCoopers study shows that service leaders can charge 9 – 13% more for comparable products and services” (Prichard).
Your ability to perform significantly better on something the customer values is critical to your company’s financial success. Unfortunately, trying to differentiate your company on the attributes of your product and / or service is becoming more and more difficult. Today, as many as nine out of ten customers believe products and services are interchangeable. In a highly competitive and electronically connected global business market it is just a matter of time before someone matches your product offering. Therefore, it is one’s ability to offer a top-notch product and / or service while simultaneously delivering unexpected levels of customer service that will make the difference between success and failure in retaining a higher percentage of your customers.