The key to increasing your profits is retaining your best customers. Let them tell you how by asking the right questions.

In response to competition, customer demands, and the need to reduce costs and increase profits, managers are launching sales initiatives designed to gain or retain market share. Unfortunately, these programs rarely focus on retaining their best customers who supply the bulk of their profits. The costs of bringing in new customers are high, and the sales cycle is long.

By targeting key customers, you will more likely achieve your profit objectives. A proactive program to retain key customers: 1) meets or exceeds customer expectations through an effective measurement and communication program; 2) improves service delivery based on in-depth and direct customer feedback; and 3) builds strong customer relationships by involving employees directly in developing performance improvement plans that turn dissatisfied users into satisfied customers, tell customers that they are being heard, and thank customers.

Customer Lifecycle

The customer lifecycle is composed of four stages:

Stage 1. Everyone is excited about sales landing a new account. The customer is impressed with all the attention from sales and the senior manager. Customers are told that their business is appreciated and that their needs will be given constant attention until they become familiar with the services.

Stage 2. The original sales person or sales team is now focusing on winning other new accounts. The initial excitement is gone. Sales commissions are reduced. The account management function takes over. The customer feels comfortable with using the services and seems satisfied with the buying decision.

Stage 3. With turnover inside both customer and supplier companies, everyone forgets the time and effort that went into winning the account. The customer requires less attention and has become more profitable. Original parties to the buying decision have changed, and the supplier is communicating only with the user. The competition is reaching the customers, informing them of newer technologies, better approaches, or more cost-effective ways of providing services.

Stage 4. The customers decide to review their suppliers. The customers now want even more effective communication, stronger partnerships, and key contacts within supplier companies. The suppliers must now resell their “own“ customers on why they should continue to buy services from them and not from someone else.

At what stage are your customers?

Customer Retention Programs

Retention programs are frequently reactive, emphasizing “fire fighting” rather than “fire prevention” and featuring measures to “save” customers after they threaten to end the relationship. Sales and service people are given incentives to recapture business only after it has left, not to retain current business. Most retention programs are merely “stop gap” measures, rarely resulting in long-term results. When one customer problem is resolved, management moves on to the next.

Sales managers may be required to visit key customers, but these “key account programs” are seldom effective because managers are not trained in interpersonal skills. They seldom know what questions to ask or what to do with the information they receive. And so customer visits become rare, leaving the customer with unmet expectations.

Few executives place enough emphasis on servicing new customers. First-year attrition rates are often double those of older accounts. By doing extensive “exit” interviews, we learned that early attrition occurs for four reasons: 1) if a problem develops during the first few months, customers assume these situations will occur frequently and feel buyer’s remorse; 2) the original sales person doesn’t speak with customers regularly; 3) an account management or customer service function is not set up with the customer; and 4) the customer still does some business with former suppliers, making it easy to return to them.

Organizations are more vulnerable to competition if they fail to track when original decision makers leave and new ones take over. And then, there are “imaginary” customers, who still appear on the billing files as active accounts, but who decided months ago to stop using an organization as a supplier. Nobody wants to admit that these customers have left.

Customer Exodus

Customers start purchasing less from you for one of three reasons: 1) the customers’ business has been reduced, and so they need fewer services; 2) they have decided to provide the service in-house; and 3) they have gone to the competition because they are not satisfied with your services, communication, technology, cost, etc. These situations afford chances not only to gain back market share, but also to obtain an even larger share of the customer’s business. But this will only happen if the company can turn unhappy users into satisfied customers.

The best sources to articulate expectations and make recommendations to increase customer satisfaction are your best customers. Take better advantage of these relationships. Know what your most profitable customers expect. This information provides the basis for a detailed customer satisfaction measurement system. Knowing customer expectations will provide you with “job descriptions.” Your employees will know exactly what is expected of them by their customers. When you focus on delivering service excellence to your most profitable customers, all your customers will benefit. SME

Richard R. Shapiro is president of M.J. Rich Associates in Short Hills, NJ. 201-857-7050.

ACTION: Formulate a customer retention plan for your area. Implement it, measure results, and refine the plan.