Attrition, arguably, is a somewhat nascent issue. But it is one that should be addressed.
Whether your company has an ongoing customer relationship, such as a bank or magazine publisher does, or your sales effort is based on single-unit sales and repeat purchasers, attrition affects us all.
Any positive impact that can be made on attrition will have an almost geometric impact on profitability. A study done by McKinsey & Company indicated that repeat customers generate over twice as much gross income as new customers. Also, according to Reichheld and Sasser (1990), a 25% increase in retention could yield a 125% increase in net present value profits.
So, it behooves us to better understand the what and why of attrition and exactly what, if anything, can be done about it.
The first question one should ask: "Is customer retention a problem in my company?"
On a company-by-company basis, maybe not. My hypothesis is that in most cases the issue is significant enough that a concerted effort should be made to minimize this outflow of future revenue.
Anecdotal research has yielded an alarming consistency across disparate industries. Industries reviewed had no product overlap, though attrition for all was in the 30-35% annual range. Apply a similar percentage to your company, and you would likely agree that the result represents a sizeable impact on revenue.
So what's to be done about it?
First let's define what we mean by attrition: Basically, any customer that is doing or has done business with your company but is no longer can be considered a lost sales opportunity.
In a retail environment this may be a household that has not made a purchase within a certain period of time. For the banking industry, as an example, the issue is a little more easily identified. If a household is on the database in one period and not the next, then obviously the bank no longer has that household generating revenue. For a magazine publisher, the situation is similar: subscriber today, non-subscriber tomorrow.
So, let's look at how one might approach this issue:
1. Determine why customers have left your company
Pull a substantial random number of recent defectors to survey. This database can be built by comparing your customer file over several periods for those households that were present on a previous file and not on a subsequent file. Or, for retail businesses, scan your customer file for those that have not made a purchase within a timeframe that is reasonable for your industry.
The most cost-effective way to gather this information is via a direct-response mechanism such as direct mail or outbound telemarketing. Focus groups are also an excellent way to interact with the target audience but are not very cost effective; nor are they usually predictable.
This step is important, if not necessary, for obvious reasons, but will also help you quantify that portion of attrition that can be affected. For example, more than likely a majority of households' attrition is directly attributable to lifestyle reasons: such as death, divorce, marriage or a move out of your market area.
Those factors that are related to service, pricing, convenience (time or place), or product availability constitute that portion that can be affected to some degree.
2. Begin communicating with your current customers
Do so in parallel with the first initiative, via in-store displays, statement messages, statement inserts, newsletters, etc. to inform and to positively reinforce their selection of your company.
Consistent communication also serves to keep your company "top of mind" when the customer contemplates another purchase decision.
3. Implement an intelligent up-sell program to your current customers
For those businesses that have an ongoing relationship with the customer, the behavioral data maintained on your database can be combined with demographic and psychographic data from external sources to produce a rich warehouse to use in defining up-sell opportunities.
There is a positive correlation between the number of services your customer has and retention. It is an axiom that direct marketing is one of the most efficient ways to get the right product to the right household. Additionally, mail groups have been shown to respond at a significantly higher rate than no mail groups.
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Retention/attrition may not be the bane of a particular industry, but a positive impact via proactive strategies will most assuredly have a significant impact on profitability.
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