So the question becomes how to detect before too many customers defect.
First, you need to keep your attention focused on your best customers—the ones you really want because you can serve them well and profitably over a long period of time. They are your lifeblood. You want to be in touch with them about your performance, the value they expect to derive from you, and their net promoter score that I defined at the close of the previous chapter, especially their re-purchase rates. Retaining these customers is of utmost importance. Keep a close eye on how much and how often they are spending with you.
I refer to this information as a “success analysis”; that is, determining what has truly made you a successful supplier from your customer’s perspective. What drives them to buy from you rather than from your competitors? Are they valuing what you thought were your strongest selling points, or something else?
A financial modeling software company had good, solid sales and thought its customers were using it as a stand-alone product. When they actually asked if they could observe their customers as they used the product, they discovered that it was used as an add-on product for Excel. This success analysis made the company realize that they needed to focus on two features in order to keep their best customers. First, they had to make the interface with Excel seamless and user-friendly. Second, they had to stay steps ahead of Excel in adding features that customers wanted.
If any of your best customers reduce or change up their purchasing patterns, you then need to switch gears to perform what I call a “failure analysis.” It certainly doesn’t sound like a positive, but you may find that your success analysis doesn’t give you any clues as to why the defection is occurring. A failure analysis might be a more valuable tool. As Einstein said, “invert, always invert—in mathematics and physics.” Well, it turns out that it works pretty well in business too.
But, it’s not always easy. Customers don’t always know what drives their behavior—at least early on.
Here’s an example. A large grocery chain asked customers what they looked for in grocery stores. They mentioned things like wide, well-lit aisles, well-stocked shelves with large product variety, big shopping carts, and plenty of samples. The chain used the information to design their new stores. Unfortunately, after strong openings, these stores did not retain their initial customers in the numbers they had hoped.
Turns out, the grocery chain asked the wrong question. After much more research, they learned that they should have asked, “What drives you to choose one grocery store over another?” The answer to that question is: 1) quality of produce, 2) quality of meat and fish, and 3) fast checkout lanes. What customers said they wanted was not, in fact, what drew them to one grocery store over another.
A major business school learned a corollary lesson: what people complain about is not necessarily what drives satisfaction or defection. Students at a top business school were vocally unhappy with the lack of meeting rooms, the lack of parking near the school, and the lack of a snack bar. However, what drove their net promoter score and subsequent donations to the school were: 1) quality of their classroom experience with their professors; 2) quality of their classroom experience with their fellow students; and 3) quality of their social interactions with faculty and classmates outside of the classroom. What students complained about had almost no connection to their important feelings and behavior towards the B-school. Would building more meeting rooms and parking spaces have made the students/alums happier? Maybe. Would it be worth the B-School’s investment? Probably not, because they did not drive long-term “customer” satisfaction.
The lesson is that before you leap to fixing things that bother the customer, you need to determine what changes will actually make a difference to the customer’s loyalty and retention. Then focus your change efforts on those high-value pain points for the customer.
For these important customer dissatisfactions, Frederick Reichheld, the early pioneer of customer loyalty and defections, borrowed “root cause analysis” from engineering to get to the bottom of why your customers are defecting. This is often referred to as the “five whys” in manufacturing environments. Through careful questioning, you want to get beneath the surface to understand the real causes for them leaving you. Talk to them to understand why. Is there a new competitor who is offering more value either through better product/service features, such as better quality, customer relationship, price, etc.? Or do they offer lower transactions costs, such as being closer to the customer or having parking?
You can also use root cause analysis to fix the problem. So, if a customer complains about late shipments, you can ask yourself why they are late. Perhaps it’s because you were out of product. Then why are you out of product? Well, purchasing is slow to re-order. Why are they slow? Because no one tells them when the company is getting low on product.
You get the idea.
Finally, keep in mind that not all defections are bad. As discussed in a prior lesson, you actually do want to lose those customers whom you don’t want and can’t serve well and profitably. For those, you want to help them find an alternative supplier that can meet their needs.
Critical Path Action Items
What are the success requirements for your very best customers?
What are the “five whys” that lead your customers to defect?
What can you improve that would drive your customers to be very satisfied and not defect?
Are there customers you would like to defect? How can you help them do so in a positive way?