Customer retention – an outdated model?

by | 27.09.2021 | Processes & methods |

“We are very sorry that you want to leave us already. Please cancel your membership yourself. Under the following link you will find the instructions on how to easily cancel your membership yourself …”

You are. Me too. Your neighbours, friends, colleagues – everyone is. Customers. Sometimes we are guests, consumers, patients, subscribers, solicitors or clients. In other words: customers. In itself, this is very fitting, because there are an infinite number of organisations that would like to have you and me as customers. And a large number of these organisations are also happy if you remain permanent clients. And then there are the other organisations that see customer loyalty almost as an outdated model …

In this article I would like to do some advertising for customers and customer retention. Using two examples, I will describe how companies almost sabotage relationships with their customers and what alternatives there are. If, at the end of the article, you think about the relationship with your customers for whom you or your organisation provide services or develop products, then I have achieved my goal. Just remember: we are all customers. And as customers we have expectations and desires.

Service wasteland and exhausting customers

“The complete absence of acceptable services” – this is how the Duden defines the term service wasteland succinctly.¹ From my point of view, this is not quite accurate, because services can be provided in parts and even be better than acceptable and yet the judgement “service wasteland” is justified. Even when a service is delivered and the outcome is what you want – the trip is booked, the meal eaten or the bike repaired – the way the service is delivered has a big impact. Impact is often a question of attitude. How does a service provider meet his customers? What attitude does he show? Openness, friendliness, the will to serve, eye contact, body language, etc.? – Many “little things” are expressed in the attitude. If the attitude is suboptimal, the effect is suboptimal. And the relationship with the customer suffers and with it customer retention.

In practice, this can often be observed when the service delivery gradually decreases. Prospects want to be won over. Companies invest in customer acquisition. They get in touch, they answer questions, they promise X and Y. The prospect becomes a customer. Over time, the company gets in touch less and less. The contact person who turned the prospect into a customer changes. A “service number” is established for questions. The service employee knows neither the customer nor the customer’s situation. The customer is surprised and reacts irritated. The service employee is annoyed. And that is the beginning of the end of customer retention (or at least it can be).

Stop! Not quite so fast! Of course, it is easy to pigeonhole numerous companies and situations. But it is often unfair. Because: customers can also be really demanding. They have ideas that push organisations to their limits and beyond. “No, I don’t want to sign a service contract with you as a manufacturer! Much too expensive! And yes, I want to get my problem solved right now over the phone!” Anyone familiar with such expectations in a support-intensive product and service environment knows that customer retention is not always easy (and although few organisations will admit it, sometimes it’s okay if one or two customers move on).

Ergo: “There are two sides to a coin and “it takes two to tango”!

What is customer retention?

Customer retention is the “effort of a company to bind customers to itself by economic, social, technical or legal means”.² Or to put it more simply: it is about convincing customers of a business relationship in the long term in order to continue to profit from each other in the future. Customer retention is influenced by

  • customer satisfaction,
  • attractiveness of the competitor’s offer,
  • barriers to switching and
  • the desire for variety.

The whole thing is garnished, for example, by the customer’s trust in a supplier or product, by local proximity, opening and response times, by minimum terms, notice periods, discounts, bonuses, penalties or switching costs, by product dependencies, eco-systems and customer cards. The ingredients for customer retention are plentiful.

A small hint: Of course, customer retention involves two parties: the customer and the company. Customers can be retained, yet customer retention addresses the intention of companies towards customers. In the opposite case – the customer remains loyal to the company – the expressions “brand loyalty”, “product loyalty” or even “shop loyalty” fit quite well. Together, customer retention and, for example, product loyalty make a good pair.

Customer retention can be so easy!

I promised you two examples that show how customer retention is sabotaged by companies from time to time, and what alternatives there might be.

Example 1:

“We are very sorry that you want to leave us already. Please cancel your membership yourself. Under the following link you will find the instructions on how to easily cancel your membership yourself …”

This is how the reply to an email sent to a service provider who, among other things, streams selected Bundesliga and Champions League football matches on my smart TV via an app begins. The service provider had informed me via a message on the TV set that the app would no longer be supported on the device in question in a week’s time. “Uh, what?!” I thought to myself and wrote an email with two questions: “Why is the operation of the app being discontinued when it works smoothly?” And, “How can I cancel without notice?”

The manufacturer’s reply a week later ignored my first question and answered my second. That was it! For 5 years I had subscribed to the streaming service. I had put up with the annual price increases, sometimes combined with reduced programming (broadcast rights to individual football leagues change between providers). Why? Because of the “switching barrier”. Or: because of my laziness. As a business economist, I can understand that the switching barrier is an instrument to increase revenues with existing customers. As a customer, I know that it is not a nice tool.

And how can the situation be solved? A comparable, new TV set from my manufacturer costs about 1,500 euros. The streaming service costs 12 euros per month. That is not a good ratio and therefore not an option. Moreover, the identical scenario may loom again in a few years. A colleague gave me the solution: I don’t need a new smart TV, but another device. A small separate box on which I can update or add new apps and which can be easily connected to the TV set. Depending on the version, the device costs about 200 euros. 200 euros instead of 1,500 euros. A good ratio. So what would I have liked to see in the course of customer retention?

  1. An answer to my first question, because presumably there are comprehensible reasons, of which I am not aware, that led to the discontinuation of the app on my device.
  2. A hint that I can solve this situation in another way. If colleagues of mine know the solution to this situation, then the company in question should also know this solution and communicate it accordingly. Customer retention can be so easy!

Example 2:

“Please take a moment to complete this short survey and rate your experience. Your feedback is important to us – so we look at every review.”

I recently received these lines in the mail. Nice to see a provider interested in my feedback. And extra nice that he will then look at it! Is this corporate communication from hell?

Words have an effect; interestingly, both the words that are spoken or written and those that are not. Asking for feedback makes sense! But in addition to words, actions are also important. And by that I don’t mean reading the feedback, but reacting to it. Be it with an answer, be it with an implementation of possible suggestions for improvement with subsequent communication: Do good and talk about it.

How often, for example, have I left feedback with car-sharing providers (“Car won’t start!”) and still been charged one euro – one provider calls this an “unlock fee”, another a “liability reduction”. As a customer, do I really need to explain that a rental car that is not moved defeats its purpose and it therefore makes no sense to debit money from the customer’s account? Some use cases are really easy to analyse. And customer retention can be so easy!

I would like to remain your customer!

Of course, customer retention is not a discontinued model. Nevertheless, I often have the impression that companies should place more emphasis on customer retention. I would love to shout to the companies from my two examples, but also to everyone else:

“I would like to remain your customer! Please don’t make it so difficult for me! Just think about me and the situation I am in. I am your customer and I simply want to use the same service with the same quality! And feedback I’m happy to give you, if you want to use it!” 

Maybe you feel the same way I do? Maybe it is enough to feel that you are taken seriously as a customer. Often you as a customer can’t help a problem and even if you were “to blame” for it, you would want support. Friendly, competent, reliable support and clear, open and speedy communication.

Unfortunately, there are many examples that show that companies revolve around themselves. If you want to change to a cheaper tariff with your health insurance company, you are asked to undergo a health check, even though you are already insured with said health insurance company. If you want to change to a different tariff with your telecommunications provider, you are asked to cancel, because “lucrative offers” can only be offered to new customers, but not to existing customers. That can be done better!

A final thought: Of course, not everything always works out perfectly. But perfection is not necessary for customer retention. Attitude is the decisive keyword here. If someone wants to keep me as a customer, then in most cases I will be happy to remain a customer. Isn’t that the same with you?

 

Notes (in German):

[1] Duden: Servicewüste
[2] Nierschlag, Dichtl, Hörschgen: Marketing
[3] Sybille Isabelle Peter: Kundenbindung als Marketingziel

Michael Schenkel has published additional posts in the t2informatik Blog, including

t2informatik Blog: Mission customer focus

Mission customer focus

t2informatik Blog: Customers don't know what they want

Customers don’t know what they want

t2informatik Blog: The customer is king

The customer is king

Michael Schenkel
Michael Schenkel

Head of Marketing, t2informatik GmbH

Michael Schenkel holds a degree in business administration (BA) and is passionate about marketing. He likes to blog about project management, requirements engineering and marketing. And he is happy to meet you for a cup of coffee and a piece of cake.