The No. 1 Reason Customers DefectAccording to industry estimates, retailers face customer defections of 30 percent to 50 percent a year. This translates into a full customer-base turnover about every three years. Pressured by growth and profit goals, it's easy to see why retailers are anxious to find ways to keep customers coming back.
Retailers most commonly combat this lack of consumer loyalty with frequent sales, heavy discounting and promotions. Their thinking goes something like this: "I'll keep my brand and my ads in the public's eye, win their business and win the game."
This may be the wrong move. Instead of creating loyalty, these strategies have created price-savvy, price-spoiled customers with no sense of brand loyalty. Instead of having a favorite store, they quickly hop from all the sales-crazed competitors without warning. That's just part of the new headache.
The problem multiplies. With all the sales frenzy, soon the standard "10 percent off" discount no longer gets the response it once did, and retailers find themselves needing to provide heavier discounts. Pick up the weekend newspaper and check your mailbox and you'll see retail promotions screaming for attention.
The truth about defections: It's not price. These price-battling retailers have it wrong. It's common to blame Wal-Mart and other mass discount chains for this problem, but most customers don't defect based on pricing. Research from Purdue University indicates that the biggest reason customers give for defecting is "a poor service experience" at the store where they shop. Poor service experience, indicated by 68 percent of shoppers questioned, included "rude employee, unaccommodating, slow to respond and unable to find the right person for help" as possible explanations. Ouch.
By contrast, switching based on product accounted for 17 percent, and price was the key factor for only 10 percent among defectors. So retailers focusing on price to win over consumers are off the mark.
The "best" solution may not help you today. Plenty of people have ideas to improve the store experience. However, most of those strategies involve huge corporate initiatives requiring new technologies, new systems, retraining employees and a refocus on the customer. That's pretty much the hard-to-attain promise of CRM. Fortunately, there is another way to address customer dissatisfaction and a way to act sooner rather than later.
The price of average service. What's at the heart of a poor service experience? Quite possibly, there's more to this than meets the eye, and there might be a way to win back customers who didn't have a banner day in your store.
Let's face it, we all have to live with sub-par customer service. It seems to be the norm, not the exception. In some cases, the shopping experience is so different from the brand perception that the customer is "unbranded" and becomes a defection candidate. Having not been won over, they are yours to lose.
To lower the customer defection rate, marketers need first to build and then rebuild the brand after the customer shopping experience. Since sub-par service is a big problem, putting some practical customer-centric programs into place is a necessity, not an option.
Bridging the service gap with customer contact. Often, what makes sub-par service grow into a poor service experience in the customer's mind is a perceived lack of care from the store. It's not simply that we feel underserved, we feel unloved, too. A kind word or a nice, unexpected gesture from the store might mend a customer's disappointed heart.
Though most marketers have the initial branding exercise down, they often fail to invest in a follow-up campaign to close the gap, just in case the customer had a marginal shopping experience. The good news is, it's not hard to do.
Think small. Then think big. Ask yourself: "What can I do (or what more can I do) from a marketing standpoint to make my customers feel special, wanted and appreciated?" The answers are tried and true: thank customers for their business; invite them back to your store for special events; and let them know you care about their shopping experience. Keep in mind how infrequently this occurs where you shop now.
For instance, if you run a small retail store, you could ensure a positive post-purchase experience for customers by talking to them about the values behind your brand, expressing your appreciation and giving them a reason to visit your store again, soon. But with a huge, multi-store chain, it is not reasonable or economical to expect store staff to call and thank each customer after each visit, or to extend a personal invitation to a best-customer sale. That's why it rarely happens.
Many retailers are using voice messaging, sending professionally prerecorded calls to targeted customers. The advantages of voice messaging include the speed at which thousands of messages can be sent and the unique personal touch a recorded message delivers. Automated voice messaging delivers a perfect, enticing message every time. Direct mail and e-mail are also channel options, though they lack the speed and intimacy of voicemail. E-mail is responsive, but spam has ruined that channel.
We have seen a number of our retail clients execute basic, low-cost and effective voice marketing customer-call campaigns with impressive results - measured in immediate repurchase rates and lifetime value.
As a marketer without control over store operations, you should consider a personal communication to thank customers, to reinforce the original brand notion that drove them to the store, and to invite them back - with or without an offer. That minimum of effort just might yield maximum results and improved customer lifetime value.