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Retain-custs-510 "Even the best business is like a leaky bucket," according to Daniel G Alcorn, Strategic Business Owner and creator of ShowAppreciation.net, a company geared to helping business owners improve their marketing effectiveness through customer retention strategies. Instead of trying to stop the loss of existing customers, businesses spend their time trying to recruit new ones.

Last week Dan invited me to attend Business Referral Networking Group, BRNG, as a guest and listen to his presentation on appreciation marketing. The group which was started and owned by entrepreneur Bonnie Ausfeld works on the premise that members need to educate each other on their services rather than trying to sell them services. This is what makes this group so unique. Through these presentations members are able to learn new skills, promote their business and get to know each other quickly, which builds a sense of trust. “Trust," says Bonnie, "is the basis for any good networking group. How can you refer anyone unless you feel good about that person and trust their expertise.”

Having been involved in many networking groups I found Bonnie’s premise to be quite unusual and rewarding. You mean I don’t have to listen to boring sales presentations for an hour?

No stranger to business, Dan cited some statistics about the business climate and how businesses are reacting. In tough economics business are likely to cut back many services in an attempt to get their costs in line. Often the cost cutting also means not keeping in contact with previous customers.

The “leaky bucket theory” basically looks at a business as a bucket with liquid customers coming into the bucket through promotional or acquisition marketing. This fills up the bucket and translates into what businesses call market share. Unfortunately, according to Alcorn, the average company loses 10% of its customers through the leaky holes in the bucket. If a business were to ‘stop up these holes’, Alcorn says, research confirms businesses would improve margins and profitability. Paying attention to why customers defect also sheds light on the problem. According to a study by Reicheld and Sasser for the Harvard Business, the review cites that 68% of customers leave because of ‘perceived indifference,’ another 14% is dissatisfaction and 9% for competitive reasons. That means that 91% of customer defection can be impacted by the business if they choose to stay in touch with their sold customers. My experience with conducting customer defection surveys is that 9 times out of 10, unhappy customers will tell the salesperson that their reasons for not buying is a price issue. When these customers are surveyed, they are willing to give up the real reason which is often the store didn’t pay enough attention to me.

When it comes to marketing, where do businesses spend their money? A business divides its advertising and marketing dollars between promotional dollars (to entice new customers) and appreciation marketing to minimize defection. Despite the statistics, 60-70% of the possibility of success rate with existing customers and 5-20% for enticing new customers, most businesses spend as much as 80% of their marketing resources on obtaining new customers. According to Michael Lowenstein in his article, “Model Modelers in Predictive Churn”, Search CRM, June 2002, 62% of customer defections can be modified if discovered in advance. Often times businesses rely on ‘reports from unhappy customers’ as an indicator of business health, the U.S. Department of Consumer Affairs reports that 96% of unhappy customers never contact the business, they just go away unhappy.

The key is staying in touch with your customers. But Instead of ‘throwing some against the wall and hoping it will stick’, a business should know their targeted customer and spend time staying in touch.

Should a business spend time trying to retain their customers or let their 20 or 30 years of referrals do it all for them? The big question, are customers that don’t complain really satisfied? That brings us back to the last statistic that 96% never complain, they just go away unhappy.

Statistics tell us that 80% of a company’s new business will come from referrals but what about the customer that is unhappy? What is this customer saying about your business? Can bad business overshadow your referrals? With a defection rate of about 20% yearly it’s easy to see how a business can sell themselves out of business. In my book, Red Hot Customer Service I talk about how retention strategies can keep any business in the black.

What can a business do to stop the leaks in the bucket? The first step is to pay attention to your existing customers and track the results. This simple step can be the difference in life or death of your company.

If you want to know more about appreciation marketing and want a free consultation on how appreciation marketing might help your business, contact Dan and tell him "any friend of Lis’s is a friend of mine!"

Next week, more on retention strategies.

What are you doing to retain customers? Give us your comments.

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