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Customer Loyalty: Determining Flight Risk

After two years of class in B-school, one thing you learn is how much Academia likes to use 2×2 models (or similar models). Most of the time, these models are more of a way to give a simple representation to help with retention of a complicated or abstract concept, but sometimes they are actually helpful.

One I was recently shown looks at the idea of Customer Loyalty. While customer loyalty is one of the most studied and discussed topics, in day-to-day business we often neglect it. Most agree that customer retention is critical to business survival (and prosperity), but then we turn around and spend more time and investment in generating new leads and potential customers. To a fault, we tend to lump the world into past customers and people have not purchased. We take our past customers for granted and expect their business to just continue. Look at the cable industry for one. Anyone who has ever had cable will tell you that the industry rewards new customers and does whatever they can to hold their current customers hostage. But yet, while we scream and yell about this tactic, we too neglect our current customers in favor of winning new business. We devote entire departments and budgets to new businesses, but do we do the same for our current customers?

With that said, my challenge to you (the reader) is to take another look at your current customers? Who are the truly loyal? Who are you holding hostage? Who is about to escape?

Flight Risk of Your Customers

This post is not intended to make you better at customer retention. The goal here is to get you to reevaluate how you look at your customers to determine who is really loyal and what relationship you need to cultivate.

Below is a two-by-two model that I think presents an interestingly simple way to look at why and how some customers are loyal. It uses Customer Behavior and Attitude to get a deeper understanding of their Loyalty.

 

Loyals (blue): These are the simplest to understand. These people are your evangelists. They are extremely loyal in both their behavior and their attitude. They act as referrers and offer testimonials. You goal is to push more and more people into this box, but the question to ask yourself is, ‘How many of your customers really fall into this box?

Non-Loyals (yellow): These people are not disloyal. All people are loyal. They just aren’t loyal to you, hence the name non-loyal. They do not buy from you, so their loyalty behavior is low. They do not speak highly of you or refer others because their loyalties lie in other places. Your goal here should be to understand why these people don’t choose you? ‘Do your products not align with their needs? Does your core competency not align with what they want? Or are you neglecting a part of the market?’

Spurious Loyals (green): These are your highest flight risk. They are loyal in their behavior (repeatedly buy), but their attitude towards you is  low. An extreme example of this is your cable provider. You renew your contract, but if there was a better option you could easily be lured away. Another example of this might be a fast food restaurant close to your office or home. ‘Do you go there as often as you do because you are loyal? Or do you go because of proximity/convenience?‘ The question to ask yourself is, ‘Is your customer doing business with you because they want to, or are they doing it begrudgingly?‘ The goal here is to understand why their attitude towards you is low because if a competitor identifies that first, you will quickly lose these customers that you probably currently count on. My guess is, you probably have a much larger percentage of your portfolio in this box then you think.

Latent Loyals (pink): These people have a very positive attitude towards you, but their behavior does not match. A prime example of this would be your luxury goods. There are people in this world who are extremely loyal to Porsche though they have never owned one. People believe in your product, but do they buy it? Price is not the only factor here though. They might believe your product is high-quality and great for others, but have a misalignment with their own particular needs. Understanding why these people have a positive attitude can help you better understand some of your issues with your other loyalty boxes, but the question you must ask yourself is, ‘Why are these people not buying? Do I really understand their needs?

So where do your customers lie?

What percentage of your past customers make up these different boxes?

What are you doing to understand their behavior?

What are you doing to understand their attitude?

Prospecting: All pain, no gain?

Prospecting – Everyone has to do it, but few people like it. Without new sales, businesses fail, it happens every day, in every industry. Why are some sales reps more successful at doing this than others? Based on my experience working with sales teams, I have found that those who take a disciplined approach, follow time management skills and have the proper tools will succeed.

My starting point with sales people I work with is to first look at your current pipeline. This will help you to determine the percentage of your time you should spend on prospecting. If you want to be successful and make your numbers each month, then you need to set a minimum amount of time each week prospecting for new business. This amount may go up or down each month depending on your pipeline and forecast. If you have a strong pipeline you may want to spend more time moving your deals through the sales process and closing business, and less time prospecting. But if you’re new to a sales position, or your pipeline is weaker than you need it to be, then you may need to increase your prospecting time to fill your pipeline with more qualified leads. (more…)

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