Customers—even bad ones—are our best loyalty teachers. In fact, the lessons gleaned from "problem" customers are often rich and long-lasting. Consider the following less-than-ideal customer types and some of the loyalty-making insights they provide.
Rule Breakers: Not Playing Fair
Consider the case of a home shopping channel, which religiously applied the industry's RFM (recency, frequency, monetary value) model for scoring customer-buying behavior. A long-time customer had graduated into buying roughly $1,000 a month in merchandise and was now dubbed a "top customer" per the RFM model. In fact, her "stair-stepped" purchasing trend was exactly what the company strove toward.
But, six months later, the bloom was off the rose. When the customer's revenue data and returns data (which were stored in different databases) were matched, a surprising finding was revealed: Her returns were sky high! Digging deeper, the company was shocked to discover that the customer owned a small gift shop and was using the shopping channel's merchandise on a consignment-type basis while carefully complying with the company's 60-day return policy. Sadly, the company's data silos masked this "top" customer's true value for too many months.
Kelly Cook, who was the director of CRM for Continental Airlines, recalled a similar awakening when she worked at the airline. The first year that the airline's new data warehouse was in operation (it consolidated 45 or so separate customer databases into just 2), the company saved $5 million in security and fraud detection. Kelly recalled, "We found one customer who got 20 bereavement fares in 12 months off of the same dead grandfather!"
Before the data warehouse, for example, all sorts of fraud was possible. A devious-minded ticket holder with a canceled flight might get a replacement flight voucher from the airport customer service agent, and then immediately go to the phone and call the Continental call center and get a second reimbursement voucher for the same canceled flight.
Not anymore. Continental's data warehouse quickly consolidates customer files across channels, dramatically reducing compensation fraud.
Loyalty lesson: A timely merging of customer data across silos and channels is a must for detecting unusual buying patterns, diagnosing flawed buyer transactions (and the systems that allow them), and "encouraging" customers to play by the rules.
Churn Makers: Unwittingly Encouraging Volatility?
Sometimes, company policies unwittingly encourage customer volatility. Consider the case of the South African mobile telecom company MTN, which Mike Lowenstein and I write about in our book, Customer Winback.
Experiencing significant customer churn, MTN began investigating whether a churn-buster model made economic sense for the company. Its first step was to quantify the churn problem in detail. The company closely analyzed the number of handsets that MTN sold and compared that number to the number of connected customers. There was a big gap. Given the number of handsets distributed, the number of new connections should have been much higher.
At the time, MTN was offering sexy new products that were much in demand—handsets that were both smaller and more colorful, and they offered a longer-lasting battery charge. MTN did not have a handset upgrade policy, so the only way that existing customers could get a new handset was to cancel their present contract and sign a new contract, with a new phone number.
Could it be that a lot of the churn was from existing customers canceling and then signing up again as new customers so they could get the upgraded handsets? Eureka! MTN customer research revealed that a whopping 65 percent of the disconnected consumers had never actually left the network!
Reports Margaret Sheridan, then Group Marketing Director for MTN, "When we sat back and looked, the situation was very clear: Our sales force and the consumer had a sweet deal. We compensated our sales force based only on new connections, so they were perfectly happy to sign an existing customer up again. And customers were willing because they got new phones! And our policy of providing new customers with a recording that said, 'That number has changed, the new number is...' made it even more convenient for an existing customer to disconnect and reconnect with a new contract and phone number."
Loyalty lesson: Think loyalty. Measure your acquisition team on retention, not simply on acquisition. Revise policies that attract and reward only short-term relationships. After all, it's customer retention that creates real value for your business.
'Bought-Aways': Lowest Price at a High Cost
For many companies, the rate of first-time customer attrition is often more than double that of more established customers. Why is that?
Two reasons: One, new customers are often not properly nurtured once they are initially "sold," and this causes them to move on; two, the Fickle Factor is at play—simply put, some of the very customers your acquisition initiatives attracted have just demonstrated their propensity to switch. These fickle customers are Casanova buyers in disguise. They'll love you and then leave you—fast!
This is particularly true of "bought-away" customers, whose only true allegiance is to the vendor with the lowest price.
Consider the experience of Super Embroidery, Inc., a 300-employee Phoenix firm that embroiders hats, caps, and jackets. Super Embroidery has hundreds of customers. Sometimes business is lost to new companies that price very aggressively in an effort to win accounts. Says company president Anna Johnson, "Most of those I get back within three months because competitors fail to keep their promises."
But others don't return. "There was one customer we lost because of three cents a hat," reports Johnson, even though the customer was completely satisfied in every other way. That customer's buyer called Johnson a few months later, complaining that her new supplier was slow and the quality of its work was below the standard of Super Embroidery's—but the customer still wanted Johnson to reduce Super Embroidery's price by three cents a hat to get back the order. Johnson declined to reduce the price, and the lost customer did not return.
When I work with sales teams on acquisition strategies, we begin by reviewing some sobering sales stats: 6 out of 10 prospective customers will say "no" four times before they say "yes." We discuss why easy-to-sway buyers are easy to sell to but hard to keep, and why hard-to-crack prospects frequently make better, long-term customers.
Loyalty lesson: When targeting new customers, beware of the Fickle Factor and particularly those prospects that can be bought by the lowest price. It's you they will leave for next lowest price. Don't get discouraged with prospects who require long sales cycles. They are often the very customers from whom you can earn long-term loyalty.
Variety Seekers: Easily Bored but Important
Variety Seekers are customers who will not remain loyal to your product because they prize the experience of using many different products.
For example, I have a friend who is nuts about high-performance cars. Over the past decade, he owned a BMW, followed by a Lexus, followed by a Mercedes, followed by a Porsche. With each, he's experienced no major problem with either the vehicle or the dealer. Whenever he is asked about his car purchase history, he talks with passion about each car and the thrill of the drive. But it's clear that his need for variety trumps any feelings of brand loyalty. He reads car magazines and visits Web sites voraciously. In fact, he already has his eye on a new Jaguar model to be unveiled in the next 12 months.
Loyalty lesson: Variety seekers are not good win-back prospects. Their need for variety will likely blunt most any initiative. However, this type of customer may still have value as an advocate for your brand, since he's likely the go-to source for many of his friends and family who are contemplating a purchase.
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So, the next time you encounter some unloyal-like customer behavior, take heart. Loyalty lessons await you. Get into your loyalty laboratory, dig into the details, and see what you can learn.
Editor's note: Jill Griffin leads a MarketingProfs seminar, "Inside the Customer Loyalty Laboratory: How Companies Build Lasting Relationships" (details here).