Recovering Lost Customers

ATLANTA - A satisfied customer will tell four or five others about a pleasant brand experience. Deliver a poor experience, and seven to 13 others will hear about it. Another study's scary statistic: Unhappy customers will continue to voice their dissatisfaction for up to 23 years.

No company can afford to have its brand dissed in the marketplace for two decades. No company can also afford to lose half its customers every five years, yet that's the average across most industries. Yet despite the unprofitable implications of customer dissatisfaction, surprisingly little attention is paid to customer retention. About 80% of marketing budgets are devoted to customer acquisition, even though it costs three to five times more to replace than to keep a customer.

"That's unfortunate. Customer recovery - the effort to satisfy unhappy customers to reduce defection - must be a core element of customer equity strategies," believes Nick Wreden, author of FusionBranding: How To Forge Your Brand for the Future.

Customer recover can substantially impact profitability. Studies indicate that customer recovery investments yield returns of 30%-150%. British Airways calculates that customer retention efforts return $2 for every dollar invested. In fact, British Airways finds that "recovered" customers give the airline more of their business. Hampton Inn Hotels estimates that its service guarantee increased revenue $11 million and earned it the industry's highest customer retention rate.

An effective customer recovery program occurs on two levels. The first is a three-step process that must be incorporated into customer service operations.

The first step consists of both apology and accountability. Say, "I'm sorry," and take ownership of a mistake, even if it's because of supplier or other problems. Next, work with the customer to determine an appropriate remedy. This involves the customer in the resolution and sometimes uncovers less costly solutions. Resolution should not only address a customer's direct loss but also compensate "pain and suffering." Some refer to such compensation as "atonement." Manage expectations with resolution schedules. In one Citibank experiment, specifying time frames for next steps increased customer satisfaction by 40%. Finally, follow-up. Determine whether the customer has received the promised treatment, and, more important, how they feel about it. One study indicated that a follow-up call to a once-unhappy customer can boost satisfaction by 5%-7%, and intentions to repurchase by 8%-12%.

The second level is building integrated customer recovery capabilities in the following four areas:

* Hiring, training and empowerment: Companies must do more to upgrade the skills, training and pay of customer service representatives, especially since they handle an estimated 65% of all complaints. Other employees must also understand the importance of customer retention. Ford trains new hires in such recovery skills as interpersonal communications. Others regularly rotate employees into customer service to underscore the impact of departmental processes on customers.

* Recovery guidelines and standards: How much authority do employees have to recover customers? Employees at Marriott International, for example, can spend up to $2,500 without authorization to compensate customers. What are the timetables for resolution? British Airways research showed that 40%-50% of customers defected if it took the company longer than five days to respond. What level of complaints trigger corrective action? Can any employee handle recovery, or should you depend on special representatives trained for customer recovery?

* Systems for response: Customers should be easily able to complain via email, letter or even well-publicized hot lines. Systems should streamline complaint acceptance, and generate complaint-based reports. Insurance giant USAA scans every complaint letter into its database. Causes for the complaint are analyzed, and processes examined to avoid similar complaints in the future. To institutionalize improvements, systems should be developed to hold other departments accountable for their actions. Complaint data should also be used to determine investment priorities and service improvements.

* Such systems must incorporate integrated customer and product databases. A Harrah's database identifies customers who haven't visited a casino within a certain period. Knowing this may be a sign of dissatisfaction, the casino calls to find out why, and sends a personal invitation to return along with a coupon. This approach helped drive a 6.5% sales growth in same-store sales growth in just two quarters.

Measurement and accountability: No one likes to hear complaints, but they're actually opportunities for positive change, not reasons for defensiveness. Carefully track the number of complaints and resolution. More important, complaints must be relayed to the appropriate organizational areas to minimize re-occurrences. Remember that a rising number of complaints is usually a sign of success, not failure. Often, complaining customers are the ones most committed to a brand. British Airways found that 87% of customers who complained did not defect.

Author Wreden, MA, MS is a brand futurist and knowledge agent with 20 years of cross-disciplinary experience in branding, supply chains and operations. He has been extensively published by Harvard Business School Publishing, InformationWeek and numerous other publications.

FusionBranding: How To Forge Your Brand for the Future costs US$29.95. (ISBN: 0-9717442-0-3; hardcover, 390 pages, indexed.)