Customer Defection Costs Your Business

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Customer Defection Costs Your Business

By Larry Miller, Miller Management & Consulting - 02/01/2012

Have you ever looked at your business with a hypercritical eye? It can be a frightening experience to look for, define and document all the reasons a customer might defect from your business.

I will point out here that it doesn't matter whether you are responsible for one store as a manager or independent owner; if you have a group of stores as a multi-unit supervisor; if you are an entrepreneur with five to 500 stores; or even if you are the CEO, COO or CMO of a regional, national or global company; every company is vulnerable. Every single business across the country loses customers every single day. The most frightening part is that you very rarely get a chance to hear about, much less discuss, the reasons they are leaving your business. Most people just leave the store, never to return, taking their shopping habits and money with them.

Let's look at our customers as what they really represent. Each and every one represents real dollars and cents. In fact, according to the Convenience Store News 2010 Industry Report, the average purchase made by our customers for inside merchandise sales was around $7.50 each visit. I would venture to guess that our regular customers come to our stores, let's say conservatively three times a week. Some a lot more, but let's keep this simple.

Our average regular customers come to the stores three times a week, and each time they spend $7.50 on in-store merchandise. And for this example, let's assume that one time each week they put 15 gallons of gas in the family vehicle for about $52.50 at $3.50 per gallon.

This totals $75 per week from our regular, habitual customer, on average. That is a little more than $300 per month and on an annual basis, that is $3,900 for every one of those regular customers that walk through the door. Now I don't know about your particular store, but when I was working in the stores, customers typically fell into three groups: those you saw on a daily basis and sometimes multiple times per day; those you saw regularly, typical of my example above; and the last group are those transient customers that, depending on your location, vary greatly.

The point of all of this is that, on average, each customer that you see in any given day in our industry is worth an average of $4,000 per year. If you begin losing those customers to your competitors, it won't take long before you are out of business.

As good retailers, we must find a way to create a dialog with our customers: a meaningful two-way communication that allows the customer to tell us what we are doing well, what we are doing wrong and, most of all, if something happens that makes a customer unhappy. We also need a way to tell customers about our specials, promotions and programs that differentiate us from all those other c-stores. We need ways to tell customers about our new foodservice offerings and let our best customers know when and how to take advantage of our best deals.

How do we do this easily and cost effectively? This has been a difficult business issue for a long time and technology is not only bringing us solutions, but the technologies are also being introduced in ways that make them easy to use for all demographics.

The Nielsen Co. predicted in March 2010 that one in two mobile phone users would be using a smartphone by Christmas a year ago. That number has grown by leaps and bounds as the cost of smartphones, including iPhones, Androids and Windows-based phones declined and the technology has become even more sophisticated. As a proactive retailer, you need to educate yourself on the uses and opportunities this technology can bring you to communicate directly with those $4,000 customers.

With new technology, there are now ways we can reach out and have a meaningful dialog with the customer. We can use these new technological tools to create that exchange of information in a meaningful two-way discussion, and I have to believe that having that dialog is worth a lot to most retailers. It is critical in this day and age that you find unique ways to maintain your relationship with your customers to keep them from defecting from your business.

Let's look briefly at information from other sectors of retail:

• "Cutting customer defections in half will double a firm's growth rate, and reducing customer defections by just 5 percent can increase overall profits by 30 percent," according to Fred Reicheld, author of "The Loyalty Effect."

• A dissatisfied customer can efficiently trash talk your business to more people more quickly via new tools of social media like Facebook, Twitter, Linked In and others, as Pete Blackshore's new book sums up in its title, "Satisfied Customers Tell 3 Friends, Angry Customers Tell 3,000."

• The typical business only hears complaints from about 4 percent of its dissatisfied customers. The remaining 96 percent go away and 91 percent never return, Jill Griffen states in her book, "Customer Loyalty."

Even more alarmingly, a 2008 Gartner study showed that while 95 percent of companies collect feedback (the good news), only 50 percent alert staff to the findings; only 30 percent make decisions based on these findings; a meager 10 percent change and improve based on this information; and only 5 percent inform the customer that the business actually listened and did something to change. Why bother collecting any information if no action is to be taken? Could it be the wrong questions are asked at the wrong time without analytics?

So, we have the perfect storm -- customers who leave for reasons within our control, who can quickly destroy a reputation, yet the mechanism we choose to employ to stop this is badly chosen and poorly executed. Today's retail operations are hurt not so much by low acquisition of new customers, but by the defections of their original customer base.

Current customer feedback is the way to go, but only if the feedback is scored, anonymous, on premise, in real time and at the point of experience. Forget customer comment cards, social media comments and review sites, mystery shops and post-purchase surveys. Anything answered after the event is less accurate and less in volume. Most of us can't remember what we had for breakfast today, yet we are supposed to be able to recall how a snack was the day before.

Twitter and Yelp are just fine for telling a story, but not the basis by which a retailer makes decisions. And please, please let the user determine if he wants to tell you who he is (or not). The more you force him to give up personal details, the more reluctant he is to help.

But there is light at the end of the tunnel. There are solutions that make it possible for feedback to be gathered, analyzed and acted upon while the customer is still on site, or at least while the experience is still fresh in their memories. Not only would the problem be fixed before it affected others and especially before it leads to "I'm never coming back here again," but it is even possible for the customer who gave the feedback to see the business make the improvement or interact on the spot with someone from the company immediately. That's a story you want your customers to talk about.

New cloud-based technologies are now available that enable customers to use their cell phones to let retailers know their opinions about everything from price promotions to out-of-stocks to new item opinions and especially a good or bad service experience.

The use of the customer's mobile phone as the input device means fewer errors, faster response and it provides immediate engagement, instant gratification by the use of coupon delivery or discount codes, as well as many other opportunities for customer interaction immediately. All of this together equals differentiation for your business from your competition, as well as a much-improved level of customer service.

So, now we have the technology, the application, the analytics and the price point to help solve the growing issue all retailers are faced with today: customer defection.

There are several companies providing the infrastructure for this new technology, but like all solutions, it is wise to investigate providers. The fact that multiple millions of our customers are voting each week for their favorite dancing star or the best-sounding new American Idol using this same technology shows us that the acceptance level is high among our consumers.

Costs for this service vary by provider, but all of these services can be provided for retailers without them having to add expensive hardware, software, interfaces or any significant capital investment. Utilizing this new technology simply takes the willingness to try something new, the awareness that every business has customer defection and the initiative to ask for help.

So, with the new year here and 2012 stretching out in front of us, I challenge each of you to put customer service out front and in the center of your target for this year. It is the one thing that can truly set you apart from your competition and make your customers talk about the experience of shopping at your store(s). Try new technology, bring in a motivational speaker to talk about customer service to one of your staff meetings, reinvent you customer service training program for new employees (and old alike), but do something to improve how you take care of your most valuable assets except for your employees -- the customers.

If you don't, they are liable to defect to your competitors.

Larry Miller, president and founder of Miller Management and Consulting Services Inc., is a career veteran of the convenience store and foodservice channels. He began his career as a part-time store clerk and progressed through senior levels of management in all aspects of c-store retailing, including operations, marketing, merchandising, accounting, store development and human resources. He founded Miller Management to utilize his unique viewpoints about c-store retailing.

Editor's note: The opinions expressed in this article are the author's, and do not necessarily reflect the views of Convenience Store News.