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Build a customer franchise and reduce your churn rates

Keep your customers by building a franchise

The key in a sales sense is to developing along term relationship with a customer that is not a simple sales interaction is the customer franchise. In the ‘franchise’ concept the customer is not seen as a simple series of sales instances but as a series of interactions. For example sales and marketing assume they have a good relationship with a customer if they simply close a number of sales over time with a reasonable prospect that this will continue. This is known as a spurious sales customer relationship. For what often happens, is that the customer for some unknown reason (to the sales team at least) purchases another product or goes to another company with absolutely no warning. One way to avoid this is by building a customer franchise and having true care for the customer giving credits to the client in terms of currencies – which are valued by the customer that can build true loyalty. When a customer franchise has been built up the likelihood of that customer switching to another company in an unexpected manner is reduced.

A successful customer relationship management (CRM) approach in a marketing sense is using technology to build long-term customer franchises – enabling loyalty. This reduces churn-rates helps cross selling of other company products or enables up-selling when the time is right. The key to building a customer franchise is the intent of a company to build a long-term relationship based on trust – and not just a commitment to building a long-term sales cycle. Note: Loyalty follows the franchise building. There is constant checking of customer satisfaction ensuring corrective measures are put in place to realise good customer-service and interactions to reinforce the customers purchase decision.

We all know the old chestnut that is cheaper and easier to maintain a customer than get a new one – the costs of getting a new customer compared with maintaining loyalty can be anywhere from 5-1 to 10-1. But in many mass purchase decisions churn rates in excess of 50% are common and even in many major consumer sales situations the total customer base is turned over in less than three years.

One of the keys in reducing churn rate is reducing the sales decision to a so-called simple decision-making process. If we assume a rational sales cycle for a moment the purchase decision looks very much like a problem-solving cycle. The customer considers the item/service to be replaced and starts thinking about alternatives, questioning pricing, looking at features checking out service etc. By this means a view of the potential offering in the market is made. The customer then selects a set of potential candidates and eventually decides on a certain product or service. If you have a spurious relationship with your customers and those customers at the end of your products life go through the ‘rational sales process’ it is very likely that your customers will purchase a rival’s product – particularly is the customer has lost touch with you as a company.

The trick is to insure that the customer is so satisfied with the use of the previous product or services you have sold over the product life that the purchase decision he or she makes will be a simple one of replacement. For the customer this means less effort in terms of considering alternatives and for the company this ensures that the churn rate is reduced and competitive products locked out. This is what is really implied by reducing churn rate and customer loss. All we ‘have’ to do is to ensure that any repeat purchases for our products are for replacement and are simple non-problem solving decisions.

The purchase decision of course is not entirely rational and this is due to several factors.

  • First of all is the issue of bounded rationality applied to the purchase process. No one can possibly consider all potential products in the market, the features, and the different prices as well as the brand image etc and come up with a rational sorted list of the best product fitting the exact needs of the customer.
  • The market is not perfect; it is difficult to get an overview of the total set of products on offer (although the Internet is changing all this) and it is difficult to assess the competing offers and benefits. This implies purchasing is rational but in a limited and bounded way. Thus what often happens is a restricted set of products are generated applying rules of thumb applied to the decision-making process.
  • There is the lack of inclination to even want to go into the process of product selection in any sort of rational way – to spend any significant amount of time in the process. When we can’t be bothered to go into some sort of problem-solving mode we use rules such as surrogate markers for quality such as brand image and make a quick selection of what to weed out. We apply rules to eliminate candidates and select other in.
  • A related point to this is the time people are really willing to expend on a purchase decision can be limited. This can be really quite short for even a very major purchase – in a house sale viewing this can be done and dusted in as little as 20 minutes.

These factors the lack of inclination or desire to go into a problem-solving purchase mode, bounded rationality the inability of people to comprehend the totality of the market and the limited amount of physical time people are willing to spend to make a decision means the purchasing is bears little resemblance to a rational process.

Even better from a company’s trying to re-sell if the previous product or service has been ‘reasonable’ there’s a inclination for inertia – if the service has been reasonable over an extended period of time – people tend to stick with who they know. Many banking services can be purchased more effectively from other providers in the market but banking customers in the retail sector are notoriously high in inertia as far as switching is concerned – we select a bank and we tend to stick to that bank from most of our working lives. In a similar way insurance suffers from these inertia phenomena – hence the large amount of work done by insurance brokers to make the process as simple and easy as possible by offering price comparison websites. What this means is that if we have done our job well and have built up a loyal following many factors in the re-purchase decision militate against switching to a competitor. The message is clear: build a franchise and you build loyalty and have an easy life in sales.