19 Feb 13 Why structured “Voice of Customer” studies help in customer retention
Today, as global and local economies struggle to grow, traditional sales and marketing strategies are proving less and less effective. Companies are less motivated to take on new vendors or try new services, decision making is agonizingly slow, and pricing is cut-throat. In this situation, the RoI on sales and marketing has fallen significantly, as new customers are few and far between even as sales costs are rising. At the same time, unhappy customers are more inclined to move to a lower-cost competitor.
Research has shown that customer retention can do more for your top-line and bottom-line than traditional sales efforts. This is not a new idea and a variety of research papers and articles suggest that there can be significant gains. Some random statistics cited by people who are more qualified than I am:
- The cost of acquiring a new customer can be five to eight times more than retaining and generating the same revenue from satisfying current customers, Forrester Research
- Increasing customer retention rates by 5% increases profits by 25% to 95%, Bain & Co.
- It costs 6 – 7 times more to acquire a new customer than retain an existing one, Bain & Co.
- An average company loses between 10 – 30% of its customers annually, McKinsey
- A 2% increase in customer retention has the same effect as decreasing costs by 10%, Leading on the Edge of Chaos, Emmet Murphy & Mark Murphy
But I’m sure you know all this already!
For businesses that sell to enterprises, the benefits (or costs of neglect) can be more acute. This is because, for B2B businesses, the (relative) number of clients is small and acquiring new clients is a long and expensive process. Secondly, quantitative methods (eg. large sample online surveys) may not be appropriate given the smaller client base with differing needs requiring customized services or products.
Hence there is a greater need for a scientific, yet largely qualitative research process to understand the Voice of each customer – given that solutions will be customer-specific. Unlike B2C businesses, where one focuses on what the majority want; in B2B, one has to create custom solutions for each customer.
In our experience working with several large multinational and Indian companies, this is best achieved by a formal VoC process, ideally conducted by an independent third party. Since B2B relationships are more personalized, customers are often reluctant to be totally honest with people they normally deal with.
Another issue is that of frequency: should we do it after getting the order, or after delivering the service, or at some time after delivery? We believe that a regular frequency is best suited, as this takes into account changing customer needs and ensures that service or product standards adapt to these changing needs. In fact, a well designed VoC will help in uncovering unmet needs sooner, rather than later. How frequently? – is the next question. This depends on how quickly your industry is changing or needs might be changing – but a gap of greater than a year is not advisable.
Needless to say, a VoC survey is only one part (albeit a very important part) of a customer retention program. It is important to act on the results of the research and actually deliver what customers want. From a long-term perspective, the entire chain of listening to customers and continuously tweaking service or product features – must become a well-oiled and self-improving process.
We’d love to know more about how you or your company approaches VoC…
You can view our report based on a survey of senior decision-makers to find out how they gather customer feedback and how they use the information. If you want to read some more about how ValueNotes can help you design and execute complex VoC studies, check out the links below.
Finally, feel free to post your comments (including criticisms of this post) or write to me.