ConnectIT, 02 / 09 / 2004

Improve customer experience or be Target

Originally published at:
http://www.integratedmar.com/connectit/story.cfm?item=1082

According to a Toronto-based customer retention expert, even though 14 per cent of revenue is tied directly to the customer experience, tens of millions of dollars hang in the balance if Canadian merchants do not take steps to improve customer service.

The findings were issued in a report from The Verde Group, a marketing consultancy that helps organizations measure the cost of customer dissatisfaction. The report data is the result of 26 studies over the past five years in which 25,000 individual customer responses were analyzed.

As Canadians head into one of the busiest shopping seasons of the year, Paula Courtney, president of the Verde Group, said merchants across the country need to step-up their customer retention efforts in order to retain existing customers and generate loyalty -- especially in light of the possible arrival of U.S. retail giant Target to the Canadian landscape.

"Typically, businesses are not focused on what the customer's real problems are; they tend to look at what's going right," she said. "The link with the customer's shopping experiences will impact [his/her] future market behaviour."

But 45 per cent of customers don't contact the company about a problem they've had (that's serious). Usually, a customer will complain about innocuous issues that don't impact loyalty, she said. For instance, offering reward recognition for a customer's business or length of time doing business is generally non-existent.

"Eighty per cent of your customer base won't tell you about that, the things they do call about are questions about billing or technical support," she said. "It's the silent killer."

Moreover, if Target's takeover of Hudson's Bay Co. goes ahead, CIBC World Markets predicted Target may drastically impact other merchants for months, and possibly reshape the entire Canadian retailing landscape.

Courtney told ConnectIT Target's entry into the Canuck retail space would help bring about positive change -- she cited WalMart as an example of another large American retailer that has had a positive, indelible mark on Canadian business.

"WalMart gave Canadian retailers a wake-up call with its low-cost and value the customer strategy," she said. "In one sense, Target would be good for Canadian businesses as they'd continue to provide to the customer not just on price but on the whole shopping experience.

"The danger for retailers is they'll feel the pressure to play the price game. Don't try to lure customers to your store that way for two months out of the year."

There is a segment of the population that will shop based upon price -- known in retail circles as "reward pigs" -- those that will travel 20-kms to save a buck and gather as many loyalty points as is possible. But so too there exists a segment of the population that will shop based upon the brands they trust and they're willing to pay a premium for that brand or service, she said.

"Look at it from your business's perspective and market yourself for that business," she said. "Some people will be price hogs when it comes to groceries and buy no-name products, but those same people will perhaps only buy brand name clothing."

According to The Verde Group, approximately 60 per cent of customers have experienced at least one problem with a company's products or services in the past six to 12 months. And, when customers experience a problem, 27 per cent fewer of them will repurchase from that company or recommend their products or services to others.

The firm recommends five ways Canadian merchants can hang onto their customers and limit revenue at risk:

*Focus on retention -- the cost of acquiring customers can be up to five times the cost of retaining them and in some industries, a company only starts making money on a customer after as many as 12 to 18 months.

*Stay away from the price game -- if a company is not the low cost provider, it should not try to be for two months of the year. It's a game most can not win and it will only erode the perceived value customers place on a company's products and services. Instead, market to the company's strengths and focus on high value items. Demonstrate value to current customers and think long-term revenue instead of short term profits.

*Establish a customer focused return policy -- returns are expensive to manage and control, but worse yet is the cost of customer dissatisfaction. Additionally, each unhappy customer will tell 3.8 other people about their experience. That means if a company has one million customers and on average 60 per cent of them experience a problem, 2.3 million people will hear negative comments about that company.

*Invest in your staff -- one of the most significant risks to loyalty is when customers receive different information from different staff, whether in store, online or over the phone. This lack of consistency erodes trust in the company and its management.

*Let customers try the product -- employing the "try before you buy" strategy à la Maytag helps to build trust and reassure customers about their purchase decision. This approach not only drives customers to store locations, it also keeps them on site for longer while they sample and possibly purchase additional products and services.

Courtney said the return process can be a friend or foe in the loyalty game. If it's done properly with the customer in mind, a company will inspire loyalty in customers, build the brand and grow the business.

"Neglect the return process and you will alienate your customers, generate negative word-of-mouth and put significant revenue at risk," she said.