The Financial and Other Joys of Winning (Back) Customers

By Michael Lowenstein

  Michael Lowenstein, CPCM, is managing director of Customer Retention Associates, a customer and staff loyalty program development, research, and consulting firm located in Collingswood, New Jersey (www.customerloyalty.org).

  With over thirty years’ management and consulting experience in customer and staff loyalty research, CRM, loyalty program development and refinement, customer win-back, service quality, customer-driven corporate culture, and strategic marketing and planning to draw on, he is an active speaker, workshop facilitator, and trainer, and he is a regular featured contributor to three customer loyalty newsletters.  His keynote, general session speaking, and workshop facilitation assignments have been in the United States and Canada, Europe, South America, and Africa.  He also provides expert customer loyalty commentary and articles for several professional CRM sites on the Internet.  

   Michael is the author of two widely-regarded books:  Customer Retention: Keeping Your Best Customers (1995), and The Customer Loyalty Pyramid (1997).  He is also co-author of Customer WinBack: How to Recapture Lost Customers – and Keep Them Loyal (2001).   Additionally, he is a contributing author to Redefining Consumer Affairs (Society of Consumer Affairs Professionals, 1995), The Answer Book for Customer Service Managers (Bureau of Business Practice/International Customer Service Association, 2000), and Customer.Community: Unleashing the Power of Your Customer Base (Jossey-Bass, 2002)

   He has been a customer loyalty instructor for Pennsylvania State University and the American Management Association; and he holds an M.B.A. degree in marketing from the University of Pittsburgh, and a B.S. degree in economics and marketing from Villanova University.  He is listed in several international, national, and professional Who’s Who directories.  His clients include First Union, Toyota, Prudential, Westvaco, Cigna, Charles Schwab, Borg-Warner, Sygma, Comcast, Baptist Health Care, Metropolitan Life, Microsoft, Alliance of Community Health Plans (ACHP), Daimler-Chrysler, and Georgia-Pacific.  

   Customer Retention Associates specializes in helping clients optimize customer loyalty and value through customer and staff loyalty research, loyalty program development and refinement, loyalty action training for front-line staff and management, and customer save and win-back protocol development.  The company is a founding member of the CRM International Consortium (CRMIC), an affiliation of independent CRM and customer loyalty practitioners from around the world, which is based in Europe.  The mission of CRMIC is to offer leading-edge customer loyalty and value solutions.

   Every year, the average company loses 20 to 40 percent of its customers; and, for on-line companies the rate of customer churn can be significantly higher.  When a repeat or long-time customer defects, the negative effect on profit is substantial.  The profit contribution of these mature customers is dramatically higher than a for a new customer.

   Some firms may feel that the profitability deficit can be overcome by merely recruiting a new customer.  But these high value customers cannot be easily replaced.  In most categories of business, one-third of customers account for two-thirds, or more, of sales volume.  So, they are critical not only in terms of their profit contribution, but also because of their relatively small number.

   Lost revenue isn’t the only problem represented by customer turnover.  When customers leave, their accumulated goodwill also departs.  Each lost customer is a potential ambassador of bad news.  People tend to share their negative experiences – and increasingly on the Internet – and this can undermine even the best business reputation.

   Studies have found that one of several factors can drive defection:  unhandled complaints; or those that are handled poorly or slowly; better value offered by competition; or what we call ‘benign neglect’, simply taking the customer for granted.  Any of these conditions make it easy for customers to look for better performance elsewhere

    In today’s highly competitive marketplace, no CRM or customer loyalty program is completely successful; and despite a company’s best efforts, valuable customers will be lost.  No question, the best approach for keeping that from happening is a proactive, anticipatory relationship with customers.  But, no company can afford to stop there.  Retention and loyalty efforts must be backed up with win-back programs that can return high-value customers to their businesses.

   We’ve identified customer win-back as a major, strategic opportunity that has gone largely unexploited.  Why haven’t more companies made the effort to recover these attractive customers?  One of the reasons is that they haven’t examined the potential revenue represented by these customers.  A major study has shown that companies have a much better chance of winning business from lost customers than from new prospects.  Research from that study shows that there is a 20 to 40% probability of successfully selling to lost customers compared to only a 5 to 20% probability of making a sale to new prospects.  One continuity book club marketer, for instance, documented a net return on investment from their expired member list that was nearly ten times greater than the return from the prospect list.

   Another reason for not trying to win-back customers, beyond the effort required, is that companies don’t see any residual benefit for their companies.  Companies conducting recovery programs, however, report that contact and dialogue with these former customer has helped identify ways to improve product and service delivery, correct miscommunications, and obtain feedback on new products and services.  Additionally, analysis of win-back efforts has enabled these companies to develop customer attrition, or at-risk profiles, pinpointing those customers most vulnerable to defection and thus most in need of retention initiatives.

   Despite this growing validation, customer win-back remains an underutilized, and often neglected, opportunity; but, we see it as the next logical frontier in the growth of customer loyalty and CRM, and we’ll have more to say about it in upcoming columns.