The customer management task in many marketing departments is to increase average revenue per customer. Customer management is translated as sell every customer more services, bundle more products together and increase consumer share of wallet.
Yet these same service firms (telecommunications, cable and satellite TV, wireless companies, Internet service providers and financial services providers) lose 10 percent, even 20 percent of their customer base yearly. Their solution: Acquire even more new customers and sell even more services to existing customers. If the definition of insanity is doing the same thing over and over and expecting a different outcome, then we must qualify.
Why not try another solution to increase customer value? We often overlook that lifetime value is a combination of revenue per customer multiplied by the duration in which the consumer remains a customer. Instead of focusing on the amount we can sell each customer and ways to lock them in, why not focus on migrating them to their right size so they are more satisfied and stay longer?
A customer defects when the perceived value of the service is less than the cost of the service. The more visible and accessible the alternatives, the more frequent the switching. Conversely, if we right-size the customer’s perceived value to cost by helping him find the optimal value equation for himself, we make leaving more difficult.
All things being equal, doing nothing is easier than taking action. If there is no imperative to act, most people will focus on higher priorities. Ask yourself: How often do I look at my cable bill or bank statement, searching for the few dollars that could be saved by moving to a new company? It only happens when the cost is significantly higher than our use or personal valuation of service.
How hard is it to migrate customers to their right value? Using predictive modeling based upon customer behavior, most organizations can predict not only the services a customer is most likely to use but also how long she is likely to use them within three months to six months of signup.
Not everyone is the same, but frequently customers can be segmented into four to eight behavioral groups based on the breadth of services provided by a single supplier. With this knowledge, any provider can begin to make intelligent suggestions to a customer regarding services and service groupings that best fit that customer. These may be recommendations regarding features and benefits that are available to the customer, but unused or even unknown.
If a company proactively provides the migration path, the customer is surprised and delighted as well as one who extends lifetime value. If you force customers to find the path to their right size by themselves, they likely will also look at competitors’ alternatives. That high-value, low-satisfaction customer becomes a contributor to the firm’s double-digit customer losses.
