A recent academic study made that gut feeling official. Many companies may be able to do much more with their current customer-retention budgets or do the same with much less. That may require some deep analysis and reconsideration of current customer-retention processes, but it may be worth it. It has been found that companies can potentially improve the financial benefit of such retention activities by up to 90%. It’s dramatic, and now scientific (a recommended read: Tamaddoni et al., 2017).
For the purpose of this discussion, let us assume that you know how to identify existing clients that are likely to leave, and that you proactively target such clients with benefits, to make them stay (If you consider that assumption as unobvious – let us take care of that first). The benefits given to such customers can be financially quantified, whether relating to a discount on current orders, or future ones, or some kind of “package deals” reflecting such a discount. Let us also assume that similar retention-benefits are given to such customers. Given that, let us run the following exercises.
The first exercise will be separating profitable clients from non-profitable ones. That recent study found that over 25% of those clients that companies tried to retain, were non-profitable. Non-profitable clients should not be retained (unless they could be turned into profitable ones, which is a separate exercise we can run). If you just leave them alone and let them leave, you save the cost of benefits given to such customers, as well as eliminate negative contributions. However, customer-contributions must be carefully examined and verified before going forward with that.
The second exercise relates to heterogenic benefit-preferences. Realistically, it means that different benefits will make different clients stay. For example, it is very much possible that a certain discount will not make a given customer stay down the road, while increased attention may make an effect. Therefore, we want to be able to avoid unnecessary discounts and costs associated with retaining customers that will leave down the road. At the same time, we are willing to provide such customers with different benefits, to make them stay. How developed is your capability of identifying, what will retain who? How prepared are you to propose such benefits accordingly? When would be the optimal timing for providing such customers with such benefits?
The third exercise relates to the financial value of such retention benefits. It is very much possible that different financial values will make different clients stay or leave. The logic is quite similar to the previous exercise. So are the questions to be asked and answered.
As an end-note, I would add that any financial analysis should also take into account the cost of acquiring a new customer. That type of cost may be significantly higher than the cost of retaining an existing customer. Although hard to quantify, the same goes with respect to creating a “reference value” customers may have. In other words, the value of being able to present a given customer as such, or that customer’s ability to influence and make others join. And there may be some more monetary values to be taken into account. One way or another, take some time to give such exercises a try. They may change your customer-retention success rates, and the cost required to attain such rates.
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