New Venture Lab: Equipping Christian Entrepreneurs

Landing a new customer is usually five times as expensive as retaining or up-selling an existing customer.  Customer retention is key in my property management business where our customer relationships are contractual, recurring revenue types of relationships.  The average contract losses for a typical company in the industry is 5% per year and the average net growth is 4% per year, meaning the average company grows 9%, but falls back to 4% due to the 5% churn.  By simply retaining more customers and reducing churn from 5% to, say 1%, a company can double their growth to 8% per year - at no additional cost.  Our churn is higher than we would like, but with the combination of better sales and marketing and better retention, we are able to grow 40% per year, or 10X the average industry growth rate.  A recent study released by the Chief Marketing Officer Council sheds more light on this topic and the following article does a good job of summarizing the study's findings and laying out a few strategic imperatives. 

Businesses that focus on attracting new customers at the expense of retaining their existing ones could face customer attrition levels as high as 10 or 15 per cent annually, according to a new study released by the CMO Council in partnership with Computer Sciences Corporation (CSC), Dun & Bradstreet (D&B) and IBM.

"Customer churn is a major issue, especially in times of economic downturn," said Alexander Black, Senior Partner for Enterprise Intelligence with CSC. "Research shows that a two per cent increase in customer retention has the same effect on profits as cutting costs by 10 per cent. Losing customers is one of the fastest ways to adversely affect your bottom line -- not to mention your overall brand."

According to Black, the inability for businesses to effectively use customer data to prevent turnover results in lost opportunities and revenue from up-selling and cross-selling new products and higher costs incurred to replace lost customers, and is a hindrance to a company's long-term competitiveness and profitability.

Among the more than 450 marketing and sales executives worldwide who were surveyed in late 2007 and early 2008, 36.6 per cent said that customer churn contributed to negative word-of-mouth and devalued a company's name and brand recognition. A further 14 per cent said that they felt customer churn affected staff morale.

"Companies need to do everything they can to retain and enhance their existing customer relationships," said Donovan Neale-May, executive director of the CMO Council. "To allow customer churn to continue without a concerted effort to reverse it is simply bad business."

Only a fraction of respondents surveyed (six per cent) said they had excellent knowledge of their customers in terms of demographics, behaviour, personality and transactional data, while more than 50 per cent said they had fair, little or no knowledge of their customers at all.

According to respondents, the root causes of this disconnect from customers stemmed from inadequately integrating and applying customer data to reduce customer attrition and increase loyalty. Barriers included incompatible IT systems and databases, siloed data in functional areas, a limited strategic focus or management mandate on Customer Data Integration (CDI), lack of formalized data-sharing policies and practices in the organization, and internal political or cultural barriers, IT obstacles and objections to data integration

Those surveyed said key initiatives to increase customer retention included improving customer communications, addressing complaints, problems and pain points; and enhancing the customer experience. Unfortunately, fewer marketers noted their companies' willingness to modify business practices and policies to accommodate customer needs.

Other key findings from the survey included:

• Only 15 per cent of marketers say their companies are doing an effective job of integrating disparate customer data sources and repositories;
• Nearly 67 per cent said had no system in place for re-activating dormant or lost customers;
• More than 31 per cent do no data mining at all, while 63 per cent only doing moderate levels;

The top six strategic applications of customer information by marketers are:

• Up-selling and cross-selling;
• Segmenting and targeting;
• Driving retention, loyalty and promotional programs;
• Identifying new opportunities and unmet needs;
• Improving customer service;
• Shaping personalized and customized communications.

"We are seeing a fundamental need for marketers to be more effective at tapping the valuable vein of customer data that runs deep inside all organizations," noted Neale-May. "Investing in integrated systems that harvest customer insight is critical to driving both marketing and business performance."

By: Erin Bell

Source: ConnectIT News