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SELLING TO AN ESTABLISHED CUSTOMER IS EASIER than finding and selling to new customers -- and much less expensive, too. In fact, reducing the attrition of established customers who "leave through the back door" is usually the fastest, least expensive way to boost bottom-line profits in the short term. It also substantially increases the worth of a company in the long-term. |
However, improving customer loyalty is easier said than done. Reducing customer turnover is a real challenge for two reasons.
First, it is easy to forget about a customer once they have made their first purchase. It takes encouragement to convert a first-time buyer into a repeat buyer -- and persistent attention to develop a new customer into an established customer. Until buying from you becomes a habit, a new customer is at a very high risk of defecting.
Second, it is hard to identify customers who are drifting away. It is much easier to identify the arrival of new customers than to notice an established customer who is drifting away. It takes effort and analysis to spot customers who are moving towards the "back door", never to return.
HOW DO YOU IMPROVE CUSTOMER RETENTION?
Management Analytics Group has developed three powerful tools to point out at-risk customers and thus guide customer retention efforts. All three reports provide the long-term benefit of building your customer base. As a bonus, all three also generate short-term improvements in sales and profits.
Up-Down-In-Out ("UDIO") Report: This simple descriptive report is based upon the fact that most customers do not suddenly stop buying from established vendors. This is especially true for B2B customers. This report simply compares last year's sales to the current year's sales and identifies customers who are buying more ("up"), buying less ("down"), new ("in"), and who are no longer buying anything ("out"). The result is an at-a-glance indicator of customer acquisition, retention and sales trends for the whole organization. Further, it identifies the specific customers in each UDIO group. This provides sales managers with clear targets for sales efforts.
Second Purchase Activity Timing ("SPAT") Report: This is another simple descriptive report. It shows you the most effective time to re-contact recently-buying customers. It is based upon the fact that it is much easier to convert first-time customers into repeat customers if you contact them with an appropriate add-on or cross-sell offer shortly after their initial purchase. Doing this generates additional sales, increases customer loyalty and significantly increases the Lifetime Value ("LTV") of the customer. This report identifies both the specific customers that you should contact and indicates the most effective time to contact them.
Sales Oppportunity Analysis Review ("SOAR") Report: This descriptive report is a bit more complex but more useful, too. It recognizes that customers that demonstrate high vendor loyalty tend to buy more than one product line from the vendor. In contrast, customers who buy only one or two kinds of products are much more likely to switch to another vendor, often without notice. This report segments customers according to the number of different kinds of products they buy as well as other dimensions of their buying behavior. It guides strategies and offers intended to cross-sell different product lines to at -risk customers and thus improve customer retention.
WHAT'S THE BOTTOM LINE?
Most businesses ignore customers that are beginning to drift away. Few know the value of the customers they lose and thus do little to improve retention. The three reports discussed above allow companies to quickly identify "at risk" customers in time to salvage the investments the company has made in acquiring these valuable customers.
Aggressive customer retention programs greatly raise the long-term value of a company because retention increases the Lifetime value of the the customer base. As a bonus, retention strategies also boost short-term profitability.
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