The Case of the Missing Customer

Jan 23, 2006 9:55 PM  By

Somewhere, deep in your house file, are customers who are missing in action (MIA). Service and quality issues have alienated some. Others have simply gone quietly into the night. They left without complaint or fanfare. E-mails are unanswered, and catalogs are ignored. Maybe they have completed the lifecycle for your merchandise. Or maybe they are just taking a break from shopping.

If so, without an active plan to stop them, they will evolve from MIA to RIP.

To stop the evolution, you must know which customers are missing. Key metrics such as attrition and acquisition rates are great performance indicators. Unfortunately, they do not identify specific customers and their value to your business.

Not all customers are equal. Your business intelligence is failing if it doesn’t distinguish among buyers. Acquiring low-quality customers to replace valuable ones buys a one-way ticket to bankruptcy. Understanding your customer profiles and knowing which ones to keep or let go is mandatory. Costco gets it
Recently I let my Costco membership expire. Since my relocation three years ago, the closest Costco is almost three hours away.

I know I don’t qualify as a platinum customer, but I do have a steady purchase history. It has a great Website, and I travel to areas with Costco stores often. I usually renew my membership when I am in the store, but three weeks had passed after the expiration date. Alarms went off. Costco’s customer lifeguard picked up the phone and called. There wasn’t an email to ignore or a personalized direct mail piece to recycle. The phone rang and the message was simple – Costco missed me. The caller was professional and sounded genuinely concerned that I had severed the relationship. After I explained that I remained a fan, but location was an issue, she said, “Mrs. Ellis, we will be here when you are ready to return. Thank you for being a good customer, and we look forward to serving you again.”

There was not a script or a hard sell. No “Well, you can still shop online!” She seemed glad that I still liked Costco and hopeful that I would return. And I will return every chance I get. I might even make an extra visit this year just because I don’t want them to miss me. What’s the difference between your customers’ lifespan and their lifetime value? “Lifetime value” implies that once a customer has purchased, he has committed to a long-term relationship. The reality is that a customer’s life expectancy is dependant on merchandise and lifestyle rather than the customer’s actual lifetime. Companies with products such as maternity clothes know that their customer base must evolve quickly because the lifespan is short. It is part of their business model and key to their success. Most other companies will also find that their customers have a consistent, if less obvious, lifespan. Every company should know its customers’ life expectancy. A complete business intelligence analysis will define lifespan by customer profile. Some customers will purchase one time only. Some will purchase for a period, stop for a while, and then return. Others will make several purchases over weeks or years and then disappear forever. How much does it cost to carry inactive customers? There are carrying costs for inactive customers similar to the ones for inactive inventory. If a customer completes his lifecycle with your organization after six months and you continue to mail a catalog every month for 24 months, 18 catalogs are guaranteed zero return. Presuming a cost of $1 per piece, that is $18 off the bottom line. Multiply this by 10,000, and $180,000 is lost. There is also lost opportunity. Mailing the 18 catalogs to qualified prospects would expedite the lost-customer recovery process and increase revenue. It is hard to let customers go, but sometimes it is necessary to improve the business. A good strategic plan defines customer profiles and responds appropriately to their marketing and operational needs. Relationships still rule
Relationships are personal and between individuals. Companies do not have relationships with their customers. It is the contact between employees and customers that creates the bond.

The best service organizations encourage their employees to connect with their customers. It is those relationships that help marketing and operational initiatives match customer needs. Improving the customer experience can increase Lifespan and lifetime value. Data integration from all sources provides the information for customer intelligence. With this information, a company can model their business around their best customers and create a relationship incubator.

Customer contact and service is customizable, increasing lifetime value and lifespan. Are you following your strategic plan? Is it working? If not, it is time to create a multichannel strategic plan that integrates departments, divisions, and channels into a holistic enterprise.

Debra Ellis is president of Wilson & Ellis Consulting (www.wilsonellisconsulting.com), a Barnardsville, NC-based firm specializing in management, marketing, and operational solutions.