|
|
|
|
How Many Customers Have You Lost This Past Year? By Steve Burns, Capital News contributor Some say that loyalty, for all businesses, is dead. They say that customers will look around for the best combination of price and quality product/service and leave you in a moment's notice if you are not delivering very well on both. Manufacturers continue to see increased competition from cheaper imports, high technology companies see customers delaying their purchase decision as they continue to evaluate all of their potential technology options, retailers see discount warehouses lowering prices on every retail product and destroying their once loyal customer base. Well then, is loyalty dead? I say that loyalty is not dead - but your business may be if you are not actively creating it. I believe that you can create and sustain loyalty even in the most adverse market conditions. According to Frederick Reicheld (i.e. The Loyalty Effect), loyalty has an enormous impact on your profitability. For instance, a 5% increase in customer retention can cause a 25% to 85% increase in profitability. Staggering numbers that require your immediate attention. So then, why do customers leave you? Only your customers know the real answer. However, a recent study across all industries and types of businesses highlighted the following reasons for customers leaving a business: So what makes up the missing 68%? An unbelievable 68% of customers leave because of perceived indifference - that is, when customers feel you just don't care! You must have what I call a customer nurturing strategy in place that successfully minimizes or eliminates perceived indifference. A customer nurturing strategy involves obsession with evaluating the details of your business from your customers' viewpoint. As I work with businesses to help them improve the loyalty of their customers, I focus on both the known and the unknown. The known, would be the existing customer base. How well are you delivering on all aspects of your customer's experience in your customer's eyes? Do you really know or are you guessing? How loyal are they to your business? The unknown gets into areas in a business that most business owners don't track. For example, can you tell me how many customers you "lost" in the last year and why? Most business owners only track the directly measurable, such as sales, profits and number of customers. We tend not to track the unknown yet research shows that the area of "lost" customers can have one of the most dramatic impacts a business' profitability. Let's look further at the area of "lost" customers. From my perspective, there are three categories of "lost" customers. Firstly is the "Thankfully Lost" category, those customers that have had such a negative experience in dealing with your business that they chose to go elsewhere. Most business owners regret the customer's negative experience but usually blame the customer. They generally have a good handle on this category and can tell you the war stories. Although this may appear to be a category not worth spending time on, when I interview these customers they provide a wealth of information on what needs to change in the business. The key question that I ask here is "if you were the owner of this business, what would you change and why?" They are not afraid to tell me! Secondly is the "Slowly Lost" category, those customers that have quietly decreased the number of times that they use your business, slowly reducing it to nothing. They are usually hidden to the business owner, unless they are diligent in tracking sales by customer and following up with the customer. The key question that I ask here is "how much of your business do we have and why?" All too often we have less of their business than we should. Thirdly is the "Mysteriously Lost" category, those potential customers that have investigated your business but have chosen to go elsewhere. Do you know who they are? Do you know why they chose your competitor over your business? Most business owners have no idea. This category are more difficult to find but well worth the information that they provide. The key question I ask here is "what was it about the competitor that compelled you to choose them over this company?" Let me give you an example that we can all relate to. In the business of retail in Kelowna, things are intensely competitive. If you are a small, independent retailer, you have to find your niche and stick to it. In my case, I really want to give locally owned and operated businesses the opportunity to earn my business. I recently wanted to purchase a bicycle for my son Joshua and went to a locally-owned and operated specialty bike shop in the Mission. I arrived ten minutes before closing and heard this "sorry but we are closing now - if you want to take a minute and browse around, you can." Maybe I should have been willing to come back at their convenience. However, what did I do? I walked out - gone to another store that was open later that evening and appeared to care about my business. I was disappointed as I was willing to spend more to purchase a bike from them. While I may give them another opportunity, they really were indifferent to my business, which may mean that I never go back again. Worst of all, not only have a talked to others about my negative experience, it is highly likely that the business owner probably doesn't even know that I exist. Research shows that this category of "lost" customer, the one that chose not to do business with you, can have the highest impact on your profitability. In summary, loyalty is not dead but your business may be if you are not actively creating it. Take the time to look more closely at all three categories of "lost" customers, and you may find a goldmine of hidden profits. Steve Burns, CA, CMC, CFP, is the President and CEO of Burns Innovation Group Inc. and Steve Burns Inc. Chartered Accountant, which provide consulting and accounting services to entrepreneurs. Steve is also the Chair of the Economic Development Commission. You can reach Steve at 763-4716 |
|
