How To Stop Your Customers From Leaving
by Neil Rongstad
Customer loyalty creates sustainable profitable growth. Although this is not the only factor in the equation, few would argue the importance of managing relationships with customers in order to create loyalty. The flip side of loyalty is customer defection. And if you look deep in your housefile database you will see signs of impending customer defection.
Customer Buying Behavior
One advantage of being a direct marketer is that in most cases a transactional or accounting database captures sufficient information to quantify the impact of customer defection. Simplistically speaking, customer defection can be quantified by identifying what happens to a set of purchasing customers from any one period to the next, including key qustions such as:
• Do you know what percentage of your customers from last year has stopped purchasing from you?
• Do you understand how much more or less revenue you are receiving from customers who purchased from you last year?
If you do not invest in managing the buying behavior of your customer base, it is likely that you will not only be surprised by the rate of your customer defection, but also by the decline in revenue streams from your base customers. For a typical scenario, see the "Customer Buying Behavior Analysis" table at right.
In this example, the revenue stream generated by customers that purchased in 1997 declined by more than $10 million in 1998. For the most part, this decline in revenue can be linked to a 20-percent defection rate from 1997 to 1998. Keep in mind that this change in customer buying behavior excludes revenue being generated from new customers. Since customers tend to display a predictable "migration" to defection it is important to understand the trends in product penetration and revenue migration. Customers that decrease the amount of product lines purchased and/or revenue from period to period are more likely to defect altogether. How many of your customers have had a net decrease in the number of product lines purchased from last year to this year? How many customers have significantly decreased the amount of revenue they spend with you? Understanding how customer migration impacts defection is also a critical tool to creating a loyalty focus change within your organization.