A 5% increase in customer retention can boost bottom line profits from 25% to 125% – learn how you can profit too.
It was a typical business day, the year was 1985, and I was on the phone to a large wholesale distribution house in New Jersey. I had been purchasing from these people for years and knew what to expect. A gruff male voice answered the call:
“Nothin’ you’ve got,” I answered as gruffly, “you ain’t pretty enough.”
“Up yours,” he answered with a hearty laugh, “I suppose ya wanta buy somethin’ now?”
“Yep, here’s my order. Try to get it right this time. No more mystery shipments mokay?”
“Hey buddy, waddya ‘spect – you’re gettin’ it wholesale! You want service too?”
I began my professional career as a salesman and moved into sales management, spending ten years in that field. Then I found myself managing firms and doing the buying instead of the selling. By that time I had developed a pretty hard shell and was used to dealing with the big wholesale houses, people who sold business-to-business in the old fashioned way. Probably more than a few of you remember those days; the crude give and take and the tough talk were all part of the game.
Obviously we dealt with our own customers, the consumer end of the business, with a totally different attitude and demeanor. As dealers and service providers, we didn’t think of ourselves as being a “customer” to the wholesaler or manufacturer, and they usually didn’t treat us with kid gloves.
Boy, have things changed! Customer service at the top of the supply chain was once the poor stepchild of the industry. Suddenly the pumpkin has turned into a coach and that poor stepchild is riding to the ball dressed in the finest of corporate gowns. Managers are realizing that with just a few tweaks, those long neglected customer service departments can be turned into adjunct sales departments. Better yet, they can be turned into customer care departments.
What’s the difference? A customer care department, for example, might keep track of each customer’s buying habits. They will know how many, and how often, a customer has purchased a certain item in the past. They will be able to forecast that customer’s needs, email or fax the customer, and let him know that the necessary items are on the way. After a few such orders the customer will accept this scheduled purchase and shipping as a service he can’t do without.
This visionary customer care department has anticipated the customer’s needs and fulfilled them without his lifting a finger. The chance they will lose his business is a lot less likely at this point. A traditional service department would have been a reactionary force, waiting to respond to a complaint, a shipping problem, or a question. The customer care department is proactive, generating sales and retaining customers by being one step ahead of the game. In fact, this department should actually be considered a branch of the sales force.
What has caused this dramatic change in attitude? Suddenly everyone, from manufacturers on down, are acting like the retailer has always acted. They are polite, they are concerned, and they now have the time to talk one-on-one and to be helpful. Why? Part of the answer can be found in modern, on-line, communications.
The internet has changed business and distribution channels in a rather unexpected fashion. No, it isn’t that people are doing a lot of buying on the net, though some businesses do very well there, the influence is far more subtle – and more powerful. Today your customer can look at a product he has purchased from you and punch up the “name of the manufacturer dot com” to find that manufacturer’s web site. Suddenly channels of distribution are weakened or even obliterated, the world shrinks, and the smallest end user can communicate easily and directly with the manufacturer.
That end user may not be able to buy directly from the manufacturer, but he can get a list of distributors who can. Now he may start a bidding war, driving down the price and your margin along with it, or simply find a distributor he will like dealing with more than he likes dealing with you.
A decade ago we would have puzzled over the idea that someone would care who they were dealing with as long as the price was right and the order arrived intact. Now we don’t question this anymore. People are simply expecting more today from business dealings. They have become more self-aware, some might even say self-absorbed, and expect to be treated with real respect. A distributor who fails to recognize that his customer service department is not living up to the expected new standards is going to pay a price for his ignorance.
Within the last decade, I have watched more and more wholesale firms change how they treat their customers. More are accepting smaller end users, buyers they would not have dreamed of selling directly to in the past, and many have banished their minimum order rules. Now, no order is too small, no customer too insignificant. The big clients of the past are sometimes going around the distributor, directly to the factory, or bargaining with competing distributors for the best deals. By taking the small orders and caring for each and every customer, no matter their volume of purchasing, the wholesaler is accepting the fact that the pie may not be getting smaller, but it is getting cut into more and more pieces. You can still get the same amount to eat, but you may have to do it in smaller bites.
Of course, this is just one of the many changes that have impacted members of the supply chain over the last decade. But further analysis isn’t going to change the reality – every distributor that wants to remain in business simply has to become more focused on retaining customer base. Statistics vary, depending on the industry and on how the figures are derived, but research shows a 5% increase in customer retention can boost bottom line profits anywhere from 25% to 125%! Similar research indicates that many businesses find it takes from one to two years to reach a break-even point on a new customer – and that they are losing from 10% to 60% of their current customer base during that time period!
Now those are scary numbers. Further market research, however, shows us there may be a light at the end of this tunnel. Results of surveys indicate that about 70% of all customers who switch do so because they simply feel the vendor didn’t care about them or their company’s needs. It’s that simple…and armed with that knowledge we can go about finding a solution to the problem of customer retention. The numbers show us that it’s worth doing so even if there are changes to be made in the way we do business. Even if those changes may feel uncomfortable at first and take some training and reconditioning on the part of the people in the firm.
One of the first steps to take is to bring about recognition, along with a quantitative measure, of the problem. If your firm has never attempted to measure customer retention, this is a good time to start. Go back through sales records, over five or six years, and list every customer and their purchases. From this exercise patterns will emerge. Keep that information and study the patterns as they change in the coming years. This way you can see whether the customer retention steps you take are actually the right ones.
Write a report on what has actually happened in the past and share this information with everyone in the company. Every employee should be made aware of the figures and what they mean. They can be clearly shown that there is a problem, that the problem affects everyone, and that customer retention is a new corporate goal. You should aim for a marked change not only in how everyone deals with customers, but in the attention paid to quality control, shipping, and after market service.
If you can build enthusiasm for customer care issues, you might find that the people in the firm will monitor themselves, remanding one another when they slip into old habits. This is an ideal situation and many companies have done excellent work in attaining, and maintaining, such zeal.
Part of the success story, naturally, lies in empowering everyone in the firm with the mission. Then in rewarding everyone when goals are met. When people feel they are a vital part of a marketing effort, with a measurable goal, they will perform differently than if they are simply carrying out a function. They will care more about their jobs, and more about what the customer thinks of the company, and as a result the customer actually will think better of the company.
Then that 70% of customers who feel you don’t care about them will shrink to 50%, then 30%, then might even disappear altogether. And those are numbers anyone can learn to live with.
About the Author
Dick Barnes is a Marketing Consultant with over 35 years of experience as a Marketing Director, Sales Manager, CEO, and consultant. His book “Marketing Matters” is available on Amazon and Barnes & Noble.