September 17, 2012 - FILED UNDER Agile Business
Agile Marketing Series: Feedback Within, Feedback Without Part 2
Part 2: External Feedback and Your Customers
In his textbook “Market-Based Management: Strategies for Growing Customer Value and Profitability,” professor, author and, former engineer, Roger Best, points to the fact that your business’s most profitable customers are the ones you already have.
Why? Because when you lose customers, you must replace them with new customers just to maintain a zero-loss in market share.
And new customers are much less profitable than existing customers.
New customers require more advertising dollars.
New customers require more sales and service effort.
New customers are furthest from “evangelists” than any other kind.
“Keeping good customers,” Best says, “should be the first priority of market-based management. …Customer satisfaction and retention drive customer revenue and the cost of doing business. Ultimately, they are key forces in shaping the profitability of a business.” (Market-Based Management pg. 9)
Keeping existing customers is no small feat.
Studies show that, of 100 dissatisfied customers, only 4 will complain to a business. Only 4! But of those 4 who do complain, 3 are usually retained as customers—a 75% retention.
More disturbingly, of the 96 who do not complain, 91 will exit as customers—a 95% exit rate. (Source: TARP, “Consumer Complaint Handling in America: An Update Study,” White House Office of Consumer Affairs, 1986)
Repeat: 96 out of 100 dissatisfied customers will not say a word to you, and 91 of those dissatisfied customers—91 out of 96—will exit.
But that doesn’t mean those 91 customers won’t complain. They will.
Dissatisfied Customers Walk and Talk…a Lot
Although dissatisfied customers won’t complain to you, they will tell their friends and coworkers about their bad experience.
As Best explains, “While market position is quietly eroded by exiting customers, attracting new customers is made more difficult because each dissatisfied customer will tell 8 to 10 other people of his or her dissatisfaction.”
Customer exit is a negative treadmill that speeds up exponentially.
Best wrote these findings in 2004 based on data from 1986. This was before widespread customer use of Facebook and Twitter. This was before widespread use of product reviews and ratings on Amazon.com. This was before the social media revolution.
Dissatisfied customers—“terrorists” (obviously a queue to the time he wrote this) as Best called them—have only gotten more powerful. If you have dissatisfied customers, they might tell 8 to 10 friends personally how bad their experience was, but they may also go online and tell the whole world.
In fact, they usually do.
Domino’s Pizza vs. Domino Theory
The behavior of exiting customers led businesses to develop programs to encourage customers to complain. If customers complain and the complaint is rectified, customer retention rates go up dramatically.
Domino’s Pizza instituted such a plan in the early 1990s. The pizza-delivery giant increased their dissatisfied-customer-complaint rate from the 4% average to 20%, and they set as a company goal to address all those complaints in 24 hours or less.
The results: Of 100 dissatisfied customers, Domino’s Pizza kept 15 when they responded within 24 hours, and 2 when they responded in more than 24 hours—a 17% retention rate and a dramatic improvement over the 3% average. (Source: T. Lucia, “Domino’s Theory—Only Service Succeeds,” Positive Impact, Feb. 1992)
Given the costs of gaining new customers, this over 5X improvement in retention rate of existing dissatisfied customers made a huge difference on the bottom-line revenue—all from encouraging complaints and addressing them immediately.
Sounds like an early example of agile marketing, doesn’t it?
From the Inside, Out
The social media explosion over the past few years has made platforms for customer complaints more available than at any time in history.
Although every business is different, when you employ agile techniques to feedback internally, it will show in how you address customer feedback externally. In a sense, you must first learn how to respond to yourself before you can respond to your customers.
Agile marketing requires your teams to develop a sense of class and decorum in how we communicate to one another. Remember: everyone at your business is marketing every time they interact with a customer. Everyone, every time!
And if you know yourself, you will know your customer.
Positive feedback isn’t just a feel-good, warm-and-fuzzy bunch of fluff. If you take it seriously and make it part of your agile culture, it will become much more than that and your customers will notice. The more practice your team gets doing positive feedback exercises, the better. (See my earlier post on the Story Onion exercise.)
And it should go without saying: No agile marketing department can function without having an attentive ear on social media for dissatisfied customers.
It’s a tough job, and it shouldn’t be an afterthought. The level of discourse can be disturbingly negative on comment boards. There’s something dark in how digital communication frees us to say things in writing we would never say to people directly.
Be better than that: Be positive. Be active.
Rather than try to silence or dissuade customer complaints, encourage complaints and address them as soon as possible.
The first priority in agile marketing should be to retain the customers you already have, and the positive philosophy of agile should permeate all you do.
Succeed at customer retention, and the results will be huge.
You will never have to chase new customers again. They will come to you. Because for all the complaints, customers also give praise, which is better than any sales pitch, any day.