How to Build Customer Loyalty and Reduce Customer Churn

Posted on 08/01/2009 in Sales Management

The single most important thing to remember about any enterprise is that there are no results inside its walls. The result of a business is a satisfied customer." - Peter Drucker 

Last month’s newsletter touched on the direct link between employee loyalty and customer loyalty, and provided suggestions on how to build employee loyalty.  This month’s newsletter will highlight what you can do to increase customer loyalty and reduce customer churn. If you can do both of these things, profits will improve dramatically.

Numerous books and studies support the connection between customer loyalty, employee loyalty and profitability.  Did you know that approximately 40 percent of the companies in the Top 100 Fortune "America’s Best Companies to Work For” list also appear on the Fortune 500 List? Visit the following links for more details.

Can You Afford a Customer Churn Rate at 50%?

Studies show that average companies tend to lose 50% of their customers within 5 years? We call this customer churn, for short.  By contrast, the best companies do a much better job at customer retention.

Do you know how well your company currently does at customer retention? If not, make this your first action. You should gather data in two areas. First, what is the overall level of customer retention and customer attrition?  If you don’t know this information, how can you assess if you are improving?

Second, to what extent do these metrics vary by individual salesperson and/or customer support personnel? The latter data will allow you to identify the employees who are naturally doing a good job at customer retention. You can use them to develop a list of best practices that everyone should follow.  STAR can provide consultation on how you can gather and use this type of information.

What Can You Do to Build Customer Loyalty?

1. Build employee loyalty! You can’t build a loyal base of customers if you don’t have loyal employees. If you can build loyalty with your sales force and customer support personnel, profits are guaranteed to improve.  This was the main theme in last month’s newsletter, titled The Link Between Loyalty and Profitability, where you can read about many suggestions on how to build employee loyalty.

2. Select a positive customer action that every one of your sales and customer support personnel will follow. It is easy to say to your employees that "…we want to improve customer loyalty”, but the real challenge is to do something about it rather than just talk about it.

Let me give a personal example from an experience that I had this past weekend while shopping at a major national retailer.  When I went to the checkout area, no other customers were in line so I was pleased to go immediately to the front of the line. I waited almost two minutes for the checkout person to finish some text messaging. When I walked directly to the employee’s station, he turned his back to me so that he could finish the text message with no distractions.

The unexpected delay gave me plenty of time to read the written placard on their wall that stated in big, bold letters that "Customers are #1” at this store.  Imagine if customers weren’t that important there?

Now, let me use this example to illustrate what I mean by selecting a positive customer action. Many companies will say that the solution to the above issue is to have a policy that states something like "employees will not use cell phones while on duty”. This is a negative action. It would be better instead to have a positive policy instead such as "Customer contact is the most important thing you do. Regardless of what else you are working on, if a customer needs help or attention, that should become your top priority.”

Think of a positive customer action that applies to your business and make sure that the entire organization knows what it is and practices it.

3. Learn from the worst companies.  This sounds backwards but it works. Think of some companies and industries that are doing a lousy job on customer loyalty and retention. These are the companies that tend to lose 50% or more of their customers within 5 years. 

Without naming specific companies by name, I can certainly think of many airlines that have absolutely given up on customer satisfaction.  It is almost too easy to pick on the airlines, but let’s stay with this example. If I were to ask you one question — what negative experiences have you had this past year with an airline? — I’m sure that you could easily cite many examples.  Airlines are a perfect example of what NOT to do regarding customer satisfaction, and consequently customer loyalty for most airlines is almost zero. The same items that irritate you about airlines will irritate your customers if you fall into that same level of customer dis-service.

Have a discussion on this topic with everyone at your company who interacts with customers, and then develop some actions to ensure that don’t make these same mistakes with your customers.

STAR has two workshops that directly address the subjects of employee and customer loyalty. STAR’s Coaching for Sales Success Workshop is intended to help managers learn how to motivate and develop their employees and to build a loyal and effective workforce. STAR’s Customer Service and Support Workshop teaches the skills to wow customers and to build customer loyalty and retention.