The Game of Loyalty: Combining Customer Retention Strategies

I am a student of business in the sense that I am a graduate student of hard knocks. 

Mistake —> solution

There is something to be said about going to school and studying business. The opposite, me, is reading and applying the knowledge. I look at school as a long-term, lifelong solution. That can’t be said for everyone.

In the service business, when it comes to acquiring a customer, once you get one, you think you have one for life- or at least guaranteed for a significant period of time. Right? Surely, your services speak for themselves and if they are with you they NEED your unique service. Once you convert, surely they will be willing to navigate this situation for as long as possible. RIGHT?

Wrong.

Have you ever felt when someone leaves your business and doesn't come back that they just “wasn’t a good fit” or “wasn’t your ideal customer” or “they got what they needed” you probably heard these excuses when leaving:

“Taking a break”

“Schedule too tight”

“Lost interest”

“Too busy”

If you have ever heard these phrases before, and feel like your churn is out of control then you, my friend need to read on.

If you have ever thought of any of this you, fellow entrepreneur, think that you automatically have a customer for life you are mistaken. It's the moment you assume that you lose the customer. Trust me- I have been there.

Before I go into the reasons for this mistrust of the customer-for-life-automatically assumption, you need to understand that I lost thousands of customers in the past few years.

THOUSANDS.

Why? 

1. I am no longer the sole worker in the business and have delegated everything to my employees.
1. Once moving to ownership and not “in the business” the systems that I built to maintain the ecosystem didn’t account for the massive shift in the markets and on human nature. Also, once the owner moves on to other parts of the business to make “work on the business” a loss is already felt. The employees in your organization may not have the same passion you have or intuition. This is no knock on the great employees I have or you may have- but on some level when the owner or founder isn’t answering the phone, a seismic shift begins to occur.
2. Market shifts: Beginning in 2020, a huge shift in demand started & with that competition. When this happened, my service almost became a commodity. We needed to shift focus away from being the “same” to different which affected sales.
3. Worst yet: once we got a sale, we assumed they would be with us for the journey forever. Don’t tell me you aren’t shocked when a customer leaves early in the journey process and you have no idea why. Odds are you just forgot about their needs, wants, and desires. 

Quality Revolution in Services

The Harvard-based study by Frederick F. Reichheld and W. Earl Sasser,  “Zero Defections: Quality Comes to Services” The authors discuss how the quality revolution, which transformed manufacturing in the 1980s, is now beginning to impact service industries. Although this article was written in the early 1990s, this remains a truth that prevails today- though many of us do not realize it. They emphasize that service quality doesn’t improve unless it is measured, much like in manufacturing. What does this mean?

You can’t manage it unless you measure it.

Just imagine the Cost of Losing a Customer. What is the lifetime value of a customer? Do you know? Most accounting systems fail to capture the true cost of losing a customer, which often includes the loss of future revenue and the word-of-mouth value they could have generated. This leads to less Profitability Over Time which I discovered greatly. Our troubles started with the (sigh) pandemic and just worsened from there. While we were struggling to stay in business we were not keeping an eye on the quality of our service. Customers generate more profits the longer they stay with a company- but they were staying with us 6 months less almost 6 months less than pre-pandemic). In various industries, the pattern remains consistent: longer-term customers are more profitable.

The Concept of Zero Defections

Boldy, one day in September of 2022, I deftly stood on stage in front of all my 50 employees and declared that “we have a moral obligation to keep customers for life”. In my mind, this speech was to be bold and set forth energy to help people understand why it’s important to keep people in a business. From the owner to the person that onboards a customer to the service provider,, we owe it to them to give a great experience. I declared that we needed to keep our customers for life, unaware that 30 years earlier this study existed. Obviously, I am not from Harvard.

The authors introduce the concept of “zero defections,” meaning keeping every customer that the company can profitably serve. They argue for the need to reduce customer defection rates to improve profits. They showed how defection rates are directly linked to profit swings. By reducing defections, companies can substantially increase profits. For example, reducing defections by just 5% can boost profits significantly across various industries.

Feedback from Defecting Customers: Measuring Happiness 

The authors stress the importance of learning from customers who leave. This feedback is invaluable for identifying and addressing the causes of customer defections. We measured of well over a year and found that more than half of our customers (60%) were leaving us for preventable reasons. Loss of interest, Schedule, “busy”.

The other 40% were moving, they quite literally aged out of our program having graduated school or just took everything we offered, for healthy reasons and financial.

The 60% we could do something about. The 40%, we can’t.

We haven’t gone full “NPS” yet but plan to. NPS is the net promoter score and comes from this study and the author Reichheld. NPS is something you have seen a million times:

“On a scale from 0 to 10, how likely would you be to recommend our company to a friend?”

Why is this important? Well, we found that 100% of the people that answered this question gave us a 10. That’s, in Reichheld’s opinion, a world-class service. It was still a small sample size but not quite tiny. 40 out of 600 people answered it which gives us a larger margin of error- but the fact that 40 people didn’t waver lets me know that our service is terrific… for some. What about the rest? How do we manage, more specifically measure that to improve it for all?

We started with qualitative measurements and moved to quantitative. When it was all said and done, we had figured out a system that gave us a heads up when a customer was on the downtrend in terms of the big three “reasons for leaving”. Once we started measuring that and then getting out in front of the issues (literally confronting the customer with ways to improve and progress) they started staying longer. 

In the world of retention, it’s one thing to pay attention to the customer. It’s another thing altogether to understand their wants and needs. By understanding this, and asking them, you can build a personalized experience for all your customers.

This is not only possible but imperative. In this new world we live in where Amazon is dropping widgets with drones and robots, where AI is replacing (some) human activity, where technology is racing us to the finish line- you can’t assume that you will keep your customers.

There will always be someone quicker, faster, cheaper. But is there someone better? Building systems to thrill people with an experience is a never-ending process. That’s why most businesses fail to thrive. They stop measuring, managing, and exceeding expectations.