Four ways to hold on to customers
Category: Blog & News
I talk a lot about changing people’s behaviour, but what if you want them to stay the same? Retaining customers for example?
The business case for prioritising retention is pretty clear. ACMA, for instance cited research that(1);
- Increasing retention by only 2% has the same effect on profits as having to cut costs by 10%
- Reducing defection by 5% can increase profits by as much as 125% and
- It costs 5-7x as much to acquire as retain customer
And yet retention – or churn – is a big issue in a lot of industries, particularly those with;
- Low engagement
- Price sensitivity and
- Undifferentiated offers
Customers leaving is unnatural
We humans are an inherently lazy bunch. By that I mean we are good at following the path of least resistance and, thanks to Status Quo Bias, leaving things as they are.
Typically this inertia is something we have to work hard to disrupt in order to acquire customers and get them to take action (some ideas on how to do that here).
So given inertia is the default, the fact that someone can be bothered to leave you is a BIG wake up call.
That means that if we want to hold on to more customers we need to work out how we can impede their path to change and/or engage them to stay.
Impeding or engaging
Let’s look at retention through the two magical ingredients of behaviour; motivation and ability(2).
Motivation is how people are thinking and feeling about you and their alternatives, and ability is their capacity and capability to take action. For retention these elements form the basis of four key strategies.
1. Increase motivation to stay
With an emphasis on making your customer feel like they want to stay, the best way to increase their motivation is to develop a relationship. Make it personal, addressing them by name not number and using collective pronouns (“we” and “us”) to signal there are real people working for them. It’s easier to break-up with a business than a person, so try to lift the veil of anonymity to increase the stick-factor.
Of course you can also try rewarding them.
Extrinsic rewards are a classic way of increasing motivation. Think discounts, vouchers and prizes. Discounts for early renewal, for instance, can help to lock them in before competitors have a chance to send competing offers.
Another technique is to show them how close they are to attaining the next level of service or discount so they will be motivated to continue due to Completion Bias (like pre-stamped coffee cards).
You can also try intrinsic rewards, which are about tapping into the customer’s inherent desire to feel good about their choices ("a smart decision maker like you…"). This could also mean appealing to their need for Consistency – they’ve declared their desire to work with you before, so leaving would be recanting on their commitment.
2. Decrease motivation to leave
While at first blush it might seem the same as increasing the motivation to stay (and in practical terms you can group them together), it’s worth teasing out the nuance about how to decrease motivation to leave to understand the underpinning psychology.
While increasing motivation to stay is about giving them something to gain, decreasing motivation to leave is about making them feel they have something to lose.
Do you offer years of membership discounts like Victorian insurer RACV? Or loyalty points? Build something into the relationship that means there’s something at stake if they leave. In behavioural terms, we’re talking about Loss Aversion and Sunk Cost – we’re loath to walk away from effort we’ve expended.
Goodness knows I renew my CPA membership every year because I can’t stand the thought of losing my hard earned accreditation!
3. Increase ability to stay
Sometimes we make it difficult for people to stay with us. Inflexible terms, difficult payment processing mechanisms, convoluted phone menus, absence of (communicated or real) value...Points of friction in your renewal process impede the customer’s ability to get the job done, and as soon as you make it hard, you have to rely on them loving you enough to bother persevering.
Clear Calls to Action, dedicated phone numbers or web pages, straightforward invoicing, invoicing reminders, and pre-populated forms are all ways to make it easy.
4. Decrease ability to leave
Aside from the aforementioned Sunk Cost, you can make it complicated for people to leave. I’m not necessarily advocating these strategies by the way, but the types of things some business do;
- Make links to unsubscribe difficult from their email marketing campaigns
- Force you to call (and wait on hold) rather than cancel online or by post
- Load up the exit fees and penalties
One company that impressed me with this strategy was insurer Youi. In order to cancel my policy I had call them and speak with one of their staff rather than do it online. Through that conversation they were able to win me back by bettering the competitor’s price (more on that here).
By pulling apart motivation and ability, and thinking in terms of enabling or impeding we can more easily anticipate and resolve weak points in our retention strategy. Of course, we often only think to do this once things have hit the fan because there’s a thrill in the chase for new customers, but not much kudos in looking after existing customers. But more on that another day.
You might also find interesting;
1. ACMA’s “Behavioural Economics and Customer Complaints in the Communications industry”(link to downloadable .Doc) May 2011
2. My thoughts on the relationship between Motivation and Ability have been inspired by BJ Fogg, with whom I trained a number of years ago. More on his Behaviour Model here.