Would you agree that you make more money by keeping the customers you have rather than replacing them with new customers? You know what it costs to hire, train and break in a new employee, right? Employee turnover costs. In a similar way, when you have customer turnover, that's called churn. When do you think churn happens and what does that cost you?
A simple answer might be, churn happens when we lose a customer to a competitor. Or does churn start when you don't hear what the customer is trying to say to you and that leaves them with a hole in their life where your service or product use to be? So they look for another service or solution like yours to fill that void--that need. You competitor may think they "won" a sale but the truth is the customer's needs were always there and it is they who "win"--what they want and when they want it.
Do you just want more customers? Please say no. Would you prefer more customers who are also the kind that want your business to make a profit? Yes--that's better. If you can answer these next two questions, you are on your way to generating more business than you've ever experienced before:
- When is your value the highest to your customer?
- When is the value of your customer the highest to your business?
The answer to these questions and a great deal of useful information came to us when participating in the 1to1 Webinar on July 19, "Mission Possible: Balance Profit and Loyalty via the Customer Experience." Feature presenters were Don Peppers of Peppers & Rogers Group and James Fiorda of Sigma Dynamics.
Here's the answer. Your value is the highest to your customer at the same time when your customer's value is the highest to you. At the same time, customer satisfaction is high when trust and profits are the highest. How all of this happens is what Peppers and Fiorda discussed. If you missed it, the presentation is archived on the 1to1.com site, and when you listen to it, you'll notice there is a ton of great information that I'm not summarizing in this blog.
As Peppers illustrated his points with a story about Verizon, the story of Justin came to mind. But first, here are the facts. Peppers showed us how Verizon generated $13.7 billion in operating earnings from 2002-2004. During this period the firm also cut the monthly customer churn in half, from 2.6%, down to 1.3%. In order to cut the churn, Verizon balanced immediate profit against long-term customer satisfaction. Instead of going for the immediate cash in hand or yielding to the pressure to "make the numbers this month," they did what was right to keep the customer satisfaction high month after month.
Peppers went on to show us how Verizon created an additional $10.4 billion of value in the form of increased customer lifetime value. Churn is down and value is up. The value created by churn reduction put Verizon in first place with 87%, with Nextel back in the pack with 30% and Sprint even further back with 25%.
As the webinar went on, I thought about Justin at Verizon Wireless and what you might remember and use in your own business, after reading this story. After two years of careful research and consideration, I decided to combine my cell phone, Palm device and MP3 player into one unit on the Verizon nationwide network. I got the TREO 650 and that set into motion a major restructuring of how I keep my customer data and business information close to me at all times and completely synchronized with my company. This can be a daunting experience. It affects your ISP relationship, web settings, email settings, network settings, CRM database, interface with your own website, and ability to reach and serve customers.
The discomfort and frustration levels can go right off the charts on a TREO 650 learning curve, because everything that worked with the old phone and the Palm device that you were using yesterday, no longer works. Verizon gives you 15 days to make sure everything works or return it all and go back to where you were. On day three, I was ready to throw in the towel and take it all back, so I called the Verizon hotline for TREO 650, and discovered Justin. When was the last time you had someone from Verizon spend two hours on the phone, patiently working through every issue, every setting and weird software add-on you had in mind?
Just to make sure everything was working, Justin calls me the next day, and again, at five different times during that 15-day total-satisfaction-or-else period. Each time, Justin worked with me through the next issue and the next issue. Justin calls me! He remembers me and initiates the calls, because I asked him to "stay with me until we have everything working right." He even gives me his email along with the my Verizon case number and the name of his boss (Dan), just to make sure I don't have to break in a new person with taking care of my situation. That's a perfect example of total empowerment of an employee to earn customer trust. When trust is high, so are profits and churn is low.
I've contributed significantly to those billions of dollars in profits for Verizon over the years, and either they remembered that by looking at my customer record or Justin just happens to be a super customer service person. Our firm has had "cell phones" with one phone company since the days when you put something the size of a suitcase in the trunk of your Lincoln Continental to work as the receiver for the phone in the car. We've kept those same cell phone numbers all these years and it looks like we will be keeping Verizon another two years, or so.
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