There's No Such Thing as a 'Lost' Customer

(Excerpted from an article originally published in the March 1, 2000 issue of Customer Support Management.)

By Richard Sawyer

In early 1998, John Hancock Funds, a Boston-based financial services firm, was soaring; they'd just reached their highest level of sales ever. But even in the midst of the company's elation over its sales figures, John Savageau, the company's Quality manager, discovered that within its base of 45,000 broker-customers, JHF was losing hundreds of millions of dollars in business to other financial services providers. Savageau had merely asked a senior VP of Sales, "How many brokers stopped doing business with us last quarter?"

"No one had the answer," the manager explains. "Like so many salespeople, they were looking just at new business by dollar volume. We were at our peak, and the dollar figures kept going up; so no one supposed there was a problem. But the first time I ran a lost-customer analysis, we estimated hundreds of millions of dollars in lost sales in the second half of 1997. Brokers were simply selling the products of other financial services firms, and we didn't know why."

That's when the company brought in Diane H. Schmalensee, president of Schmalensee Partners, a Chestnut Hill, MA-based consultancy specializing in customer-focused improvement to build long-term relationships. Schmalensee proceeded to help JHF regain more than $30 million in sales from brokers who had been taking business elsewhere. To devise the winback strategy for JHF, she relied on research principles culled from The Loyalty Effect, by Frederick Reichheld (Harvard Business School Press, 1996).

First, the consultancy telephoned brokers, to determine the extent of the problem. "We identified individuals to call, by using JHF databases," recalls consultant Schmalensee. "By comparing historical data, we flagged those brokers whose purchases had dropped off by 80 percent or more; their business was declining, and we needed to know why." What she discovered was that while JHF executives and the company's inside salesforce were focused on their top broker-dealers (who each might buy a million or more dollars' worth of mutual funds per year), they were paying less attention to the thousands of brokers who were placing orders in the $100,000 range.

"We conducted about a hundred interviews - a lot of interviewing for qualitative research," she says. "We represented JHF by saying: 'We really care about your business; what can we do to regain it?' We expected they would report that they were unhappy with JHF service; but we found it was mostly a case of out of sight, out of mind. The company just wasn't staying in touch regularly-and its competition was. The business was walking out the door because of a lack of relationships. That told us that to win back these accounts, JHF would need to attend to relationship building."

Savageau continues: "We needed to start treating lower-level customers as though they were our top-tier customers. Our wholesalers and inside representatives were spending their time talking to the top 20 percent of clients, but in reality there was a billion dollars' worth of opportunity in the lower 80 percent." And according to William Pollock, president of the services consulting firm Strategies For GrowthSM (Westtown, PA), JHF's experience wasn't unique. "Measuring customer satisfaction is widely practiced, but surveying closed and lost accounts generally isn't. There's no more direct source of information than interviewing both current and recently lost customers."

After Schmalensee's research, JHF launched a broker retention-and-winback program that redirected its internal and external sales efforts to more ongoing contact with its customer base. "In the first six months, it paid off handsomely; the return was over 100-fold," she says. "It was immediate, and it was direct."

What was at the core of the success?
"You definitely need a strong database to make this work," says the consultant. In fact, the company is now so interested in seeing how the broker recovery program is paying for itself that, each month, the JHF customer tracking system lists broker-customers whose business is falling. "Now, instead of researchers telephoning the brokers after the fact, the inside sales representatives call customers proactively."

JHF executives and top sales managers even use the "lost customer list" developed from the initial research, when they travel across the country. "We not only continue to win back customers," Savageau says, "some of them are giving us more business than ever. That $33 million in recovered sales is projected to grow to almost $70 million this year. Customer winback is now an active component of our customer support model for all future business."

Why Winback?
According to Steve Kraus of the Connecticut-based consumer research firm Yankelovich Partners, "Ninety-two percent of consumers we recently surveyed say they feel more powerful today about what they buy than ever before." Customers are simply less loyal than in the past. They have more choices, better knowledge, and the ability to instantly search the Internet for whatever they may need. In the blink of an eye, they can defect to the vendor next door if they're not happy. So, savvy companies are now exploring ways to combine customer relationship management tools with customer "winback" management strategies. They're using critical data that they cull from their new and existing CRM systems, to find out where they've erred with their customers.

They're blending clever marketing approaches with super-charged customer service, to "regain" customers and lure them back to the fold after defection. And, importantly, they're empowering customer service reps to negotiate with bolting customers at point-of-interaction-before flight takes place. Sometimes that's no easy feat. But winning back lost customers is becoming key to bottom-line success in every industry, from airlines to software.

It's About Strategies & Tactics
Dave Munn is President/CEO of the Massachusetts-based Information Technology Services Marketing Association (ITSMA) - marketing, branding, and sales strategies advisors to the world's leading services organizations. "When customers are bolting or they've fled," Munn advises, "it's critical to make them feel that they're being re-approached with sincerity, and being offered a meaningful solution in a timely fashion. Late, impersonal, and token letters, calls or fixes don't get the job done. Yet we've found that most companies don't offer enough, they don't do it personally, and they take too long to offer an unhappy customer restitution."

Carrie Cornella, VP/Customer Service for the Colorado-based CRM software firm, GoldMine Software Corp, reports that her company's Number One strategy is to find out what unhappy or about-to-flee customers don't like, and then use that information not just to try to keep them on board, but to offer products and services that are better than ever before. "Some of these people end up becoming our most loyal customers. In fact, our best reference accounts are often the ones we've had the most trouble with! That's because we've had a chance to really prove ourselves. Any company can provide product, but we're a team. We believe that how you fix problems is what separates you from everybody else."

To that end, says Cornella, it's vital to make full use of CRM systems. "A large part of our strategy is to track all customer information, maintain a good history of all customer interactions, run reports, and do database mining and incident tracking, so that we can see how the customer may be struggling. The key is not to allow those little problems to build up over time-a lot of little things can eventually cause a big problem. So, yes, we're using customer information to reactively win back customers; but we're also moving from being reactive to being proactive. We're trying to see how we can train or coach customers so that they won't struggle in the first place."

As ITSMA's Munn relates, "That's one reason why the Ritz-Carlton hotel chain is so successful: Management gives every employee a $1,000 'budget' to recover dissatisfied guests. To Ritz-Carlton, the price of an unhappy guest is a lot higher than the cost to offer a free night, a room upgrade, or a bill credit. Companies shouldn't escalate complaints; they should give employees the power to handle them on the spot."

Cornella concurs: Key to preventing customer defections is CSR empowerment, she says. "We want CSRs to make offers and solve customer problems immediately. It's our goal to make sure the customer call never makes it to the manager. After all, the higher up the chain it goes, the longer the problem is unresolved.

So the CSRs are formally trained and empowered to resolve these kinds of issues. We even provide incentives for them to address specific problems while they have the customer still at hand; then, we incent them to add those resolutions to the knowledgebase, or send the customer detailed documentation to solve the problem. Our CSRs can give discounts within certain limits, as well; but if the customer is still unhappy, the contact gets immediately escalated to the VP level. The goal is to keep the customer and not let him get away from you. A lost customer will talk about a bad experience for 18 months - and remember it for 23 years. Do you want him bashing your company for that long?"

Designing the Formal Winback Strategy About a year ago, another CRM software firm, TeleMagic (a division of Sage US Holdings, Dallas), realized that it needed to formalize a customer winback strategy for its customer base. The company's research was indicating that they needed to build better relationships with their customers-even lost customers. But responding to customer needs, and winning customers back when necessary, was complicated, because TeleMagic sells its products exclusively through resellers, or authorized marketing partners (AMPs). So the company designed a "hierarchy of response" to attend to unhappy or bolting customers quickly.

"Now, if there is a problem, the AMP of record is immediately brought in to address any concerns that the customer may have," explains Karen M. Brittain, TeleMagic VP. "When a situation calls for additional on-site support, our resellers work in tandem by consulting with each other on vertical and horizontal markets. In many cases, having an industry-specific consultant, as well as a consultant with departmental expertise, serves to fulfill the clients' requirements."

TeleMagic's winback strategy includes not only the reseller channel, but the highest levels of the company. If necessary, TeleMagic corporate will work with support management and staff to bring back the customer. "Our director of Support Services is available to both the client and the AMP, to assess any situation that arises," Brittain says. "The director determines the course and scope of corporate intervention, and has daily contact with both the client and/or the AMP, to resolve the customer's problem. A formal strategy is then developed for each winback case; and as the strategy develops, it can include communication by phone, in writing, or in person from a member of the executive management team-up to and including the vice president of the company. Our clients have different problems, so each has different needs. The director of Support Services works closely with the client to define those needs, in order to develop the strategy best-suited to resolve the issues at hand."

Regain management experts agree that a formalized strategy-whether broadbased or individualized-is essential in the battle to win back customers. "Each company should have a clearly defined method of saving customers," explains Doubleday Direct's Friege. And at TeleMagic, says Brittain, "We put a special incident tracking system in place to assist escalation of potential problem accounts. Customer service surveys are also conducted with each newly registered user, to identify, early on, any implementation issues that he may be facing. Our formal winback-and-prevent-defection strategy has been in place less than a year, so it's difficult to quantify the impact on our bottom line. But we have seen an increase in the number of positive customer service survey returns as we have adjusted products, policies, and support processes based on the customer feedback."

GoldMine, too, uses numerous surveys to win back straying customers. While the company conducts win/loss surveys after prospective customers have evaluated their software, and conducts random spot surveys of customers to measure and monitor customer satisfaction, special e-mail surveys respond to specific incidents. The results are then sent back to Customer Service, where the data is benchmarked and tracked. "We log those complaints, and run reports," says Cornella. "We take the top 10 complaints of the month and, generally, find two or three issues that customers are complaining about the most. Then we implement a corrective action plan and post it on the website, or in the knowledgebase that we provide to our customers, 24 x 7. Finally, we conduct lost-customer surveys," she explains.

"We survey every single customer company that leaves us and ask them why they left. We contact each company directly, then schedule a call to the customer's management team. We're open and honest if we made a mistake. Together with the customer, as a team, we devise a game plan to tackle the issues. There's constant follow-up on a daily basis. It may go on for two days or two weeks, but the key is continuing the communication. We get many of our lost customers back this way: Now, only about 2 percent leave, and the most common reason is that the company has been acquired, or a corporate decision has been made to change software.

Still, if a client company's maintenance expires, we provide them with customer service for a 30-day grace period. If it has expired for a year, we'll provide a discount on the fee for reinstatement. And if we just plain lose the customer, we still continue to market to them, until they ask us to stop. We send new releases about products, and invitations to events, trade shows, road shows, and our annual user conference. We've won back even some of the diehards this way."

A winback case-in-point was GoldMine's experience with the Chicago Mercantile Exchange. "They'd been ready to dump us on a number of occasions," recalls Cornella. "For example, when we migrated from DOS to Windows, it was very painful for our customers, including the Exchange. But we walked the Exchange through the DOS transition by providing technicians dedicated to the migration. The Exchange stayed with us. Then, about a year-and-a-half ago, when they hired a new IT manager (who turned out to be a big supporter of another vendor's software), the memory of our previous commitment helped: The individuals at the Exchange who actually used the software did not want to give us up. But we had to win the manager over. So, we gave him a proposal, created a project plan of on-site implementation and training, and went back several times to conduct a needs analysis. Then we offered a nine-month trial. In the end, we won back the account."

How to Win Back (the Right) Customers
Okay, you've lost some customers. But are those customers worth winning back? And what will they need in order to come back to you?

According to Erin Kinikin, industry analyst with Massachusetts-based Giga Information Group, "Companies are now stepping back from just acting [on winback] and instead, are prioritizing when they should act-and with which customers. Customer churn is watched closely, and the real name of the game is customer value management. Each customer today is a portfolio; companies must provide enough services to keep them, or enough offers to win them back, but still maintain profitability. There are all kinds of eMarketing software to help you make winback offers, but it's the analysis [of the customer data in the CRM systems] that helps you understand the present and future value of each customer. So you get much smarter about which customers you love, which ones you need to serve well, and which ones you may not want to win back at all."

Says Kinikin: "Leading eMarketing software firms (e.g., Rubric, MarketFirst, and Annuncio) allow companies to create e-mail campaigns to a specified set of customers, make personalized offers, bring the customers back to the website using an embedded name, and then track who came back and what each did. This is important, because the more data you can collect on a customer, the more likely you can extend an offer that will have value to him." If necessary, a company can create multi-step campaigns that can be kicked off when the "right" customers haven't bought anything for a period of time. "Marketing or eMarketing programs can push offers specific to those customers' profiles, wait several days, then send a better offer two weeks later. In this way, a company can see which offers and campaigns are effective in bringing customers back to the fold.

Winback campaigns waged in the past," says Kinikin, "would normally take three to six months to reveal the customer need, because of the time it took to send out letters, get responses back, determine an offer, work with the advertising agency or direct-mail firm, and get materials printed and sent out. Now, companies are typically putting out e-mail campaigns in a week and getting feedback in a day, because they can get 80 percent of their e-mail response in the first 24 hours. So now they can make any number of offers in the same time it took previously to simply conduct a winback campaign." All the while, she continues, the company is adding to its knowledgebase, regarding what its customers want, what drove them away, and what will bring them back to the fold.

"And remember," she points out, "traditional [winback] marketing campaigns cost anywhere from $100,000 to $1 million. The response rate is usually only 1 or 2 percent, and the campaigns take so long that information is often irrelevant by the time the responses come in. Today, e-mail response rates are between 10 and 20 percent, depending on how good your list is and how effective your offer is; and the costs are usually nowhere near traditional figures."

Will eCRM and the Web Help? Strategic competitive advantage today lies in what a company "knows" about its customers, and how it can reinvent its products and services to deliver ever-higher levels of customer satisfaction, retention and, yes, winback. By using every division within your organization, say enterprise CRM (ERM) vendors, you can extract critical information, conduct strategic research, and implement customer profiling that anticipates customer needs and wants-and can even win back customers you may be losing. To find out what has alienated your customer, the key is to gather enterprise-wide knowledge, not just "stovepiped" data from a half-dozen CRM tools scattered throughout the organization.

"Customers are tired of repeating information three different times to three different agents," explains Christine Holley, spokesperson for Interactive Intelligence, Inc (Indiana). "What's more, they're now tired of selecting a near-real-time communications medium, such as e-mail, and not hearing back from a company for days or even weeks. In fact, many studies now paint a pretty gloomy picture of Web-based customer service." True, industry analysts have recently revealed that eCommerce service is so dismal, it is the primary reason why two-thirds of Web shoppers leave stocked "carts" and jump off of sites before they purchase. Web merchants are now pondering the dilemma of trying to win back customers they didn't even know they had!

Then, too, traditional CRM tools such as customer interaction systems and field service software, are now being augmented by new-breed Web CRM tools. From Web-based help desks and knowledge bases, to text chat and Web messaging management tools, e-technologies are presenting companies with new ways to communicate with customers. Some companies are now trying to think of ways to utilize those Web tools to help entice lost customers back.

"But I wouldn't use the Web to win back a customer," says Chris Selland, vice president of Customer Relationship Management Strategies for the Yankee Group, a Boston-based IT research and advisory service. "A winback is a very delicate situation. Your best tool is a real, live person. And because a true winback means a good selling job, even if you've got the customer service people on the case, they should bring in a salesperson-not a tool. Always remember: Winback is a very people-intensive process."

Richard Sawyer is a freelance editorial contributor and principal of Richard Sawyer Associates, a Natick, MA-based public relations firm specializing in the service management, CRM, and SFA markets.

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