Winback and Acquisition

Strategies

E-Customer Relationship Management

CHAPTER 5

Objectives

Offers ideas for identifying why customers are about to leave the organization

Describes potential actions to take to acquire and to reconnect with customers

Winback Strategies

Identify who is about to terminate

Consider lifetime customer value

Establish why customer terminate

Re-contact lapsed customers

Provide a reactivation offer

Winback Strategies A recent study showed that every year a

typical business enterprise loses 20-40% of its customers

Winback strategies—an effort to reactivate and revitalize relationships with high-value, lost customers

Winback Strategies Winback consists of

identifying which customers have been lost or are about to terminate their relationships,

reasons for losing high value customers,

effective methods for re-contacting lost customers, and

offers that communicate the benefits of reactivation

CRM Questions of Winback

Questions and information for the CRM

system

Who is about to leave?

What is the lifetime value?

Why is the customer leaving?

How can we best re-contact & reconnect?

How much will it take to reactivate the account?

1st time repeat after

lapse:

Thank you for your trust to reconnect

Lost:

Thank you for your past patronage

Lost customer(s)

Winback Strategies Identify Who is about to Terminate

Establishing a process that requires customers to notify the company in advance that

they intend to terminate the relationship

provides the company with some time to figure out

what went wrong and to then initiate a winback action

Winback Strategies By using analytical program in the CRM

system,

it may be possible to identify patterns that signal a customer is about to defect

In many CRM systems, the process will automatically initiate an action to retain customers before they lapse

Winback Strategies In some industries, such as the magazines

subscription industry,

it is fairly easy to detect lapsing customers

This is evident, for example,

when a subscription to Fortune Magazine is expiring and

the customer has yet to respond to notices for renewal

Winback Strategies CRM trigger—automatically signals that a

customer is about to be lost,

usually based on RFM information

so that the organization can take proactive steps (call, e-mail, letter, personal visit…)

Winback Strategies Consider Lifetime Customer Value

Some customers have a low lifetime value and

the organization may not want to reestablish relationships with those

who demand too much service without a corresponding amount of revenue

Thus, an initial aspect of a winback strategy is to profile customers by lifetime future value

Winback Strategies For example, the 51% share of market

held by

Cadillac in the late 1980s in the luxury car segment and

its problem with lifetime value

Estimate future value—Cadillac’s share dropped from 51% to 15%

because its customers (averaging age 60) owned their “last” car

while BMW’s share rose as its younger target base grew older and wealthier

Winback Strategies Establish Why Customers Terminate

Some customers switch brands for variety,

some find a competitor has better relative advantage, such as lower price, and

some are dissatisfied because the brand or product falls short of expectations

some are unhappy with customer service, perhaps because of a conflict that was inadequately resolved

Winback Strategies some customers relocate and are no longer in

the trading area

Before an organization can establish an effective winback strategy,

it needs to understand why a customer is not longer loyal

When an employee quits a job, it is common for

the departing employee to go through an exit interview

Winback Strategies customer exit interview—an attempt to ask,

“Why are you leaving us?”

In business-to-business markets, a senior executive may visit the lost customer a month or two

after the relationship has been terminated

The interviewer explains that the purpose of the interview is to learn,

rather than to appeal for the return of the business

Winback Strategies Focus group interview—a group of 8 to

12 former customers who would be paid a fee to talk with a moderator

about the reasons for leaving the organization or

for failing to purchase from the organization

Listening posts—frontline personnel, who have direct communication with customers,

are in a unique position to gauge customer response and

to learn why customers terminate their business with a company

Winback Strategies It is important that frontline employees at

listening posts

keep some record of problems and complaints and that

these records are available in the CRM system to trigger improvements

Other listening posts are designed to solicit customers’ comments in their own words

For example

Suggestion boxes and free-from comment boxes on Web sites

Winback Strategies Re-contact Lapsed Customers

winback team—a designated cast of salespeople with good communication skills is assembled to perform the re-contact and reactivation

tasks

This approach can be effective if the lost customer group contains people

who are of high value to the organization and

if the organization is still learning how to prevent lost customers

Winback Strategies However, winback teams can be costly

if the organization loses its best salespeople

to talking with unhappy former customers all day everyday

situational script—a “canned presentation” of talking points for the contact-sales person to use during the winback process

In essence, a situational script is written by marketing experts in a conversational style

to allow new or less experienced employees

to provide a clear and concise response to the customer

Winback Strategies Provide a Reactivation Offer

reactivation offer—the reason an organization gives customers to return to the fold

Knowledge of a competitor’s deficiencies should be incorporate into reactivation offers to lost customers

Acquisition

1. Objectives: choosing goals that focus on lifetime value

2. Strategy: selecting targets and designing mixes

3. Natural referrals: everybody is talking about it

4. Affinity programs: incentives for referrals from groups

5. Affiliation networks: paying commissions for referrals

Acquisition

6. Relative advantage: give them something to talk about

7. Switching costs: eliminate excuse to stay with the competitor

8. Point of entry: the initial contact for acquisition

Acquisition

Effective acquisition—tied to effective retention as the firm understands

who is most loyal and why,

the characteristics of loyal customers and

which segment(s) should be targeted with its offer

1. Objectives: Choosing goals that focus on lifetime value

Setting objectives should take into account the cost of customer acquisition

Acquisition The following steps can be taken

to identify the investment required on win a new customer and

to track the return on investment:

estimate costs of acquisition;

calculate average cost of acquiring a customer;

determine number of months needed for a payback to the organization of the investment; and

evaluate the average new customer profitability to set customer acquisition objectives

Acquisition

Marketers with the goal of customer acquisition should determine

which prospects are to be targeted and

how much can be spent on acquiring them

Acquisition

2. Strategy: Selecting targets and designing mixes

potential target markets—customer segments considered to contain high-value potential customers for an organization

The celebrated 4 Ps that comprise the marketing mix – product, price, place, and promotion

are the basic elements of the benefit package designed to meet the needs of the target market

Acquisition

In many business situations, organizational objectives will be

to apply the principles of mass marketing (e.g. broadcast advertising, product sampling, price deals, etc.)

to acquire new customers

Acquisition

For other targets, the benefits inherent in the marketing mix must be

personally explained to each potential customer

Within a CRM strategy, marketing research and data analysis may be used

to determine the appropriate competitive position and

offer/price for each customer segment

Acquisition

The optimum content, timing, frequency of promotional messages, and selection of media

to reach customer segments may also be based on CRM analysis of these markets

Acquisition

3. Natural Referrals: Everybody is talking about it

Natural referrals—sincere and heartfelt recommendations of satisfied, loyal customers

through word-of-mouth advertising

Why should a customer make the effort to refer someone to an organization?

In many cases it is because the customer is an advocate

Acquisition

Customer acquisition for Harley-Davidson motorcycle is based on referrals

because the emotional bond of existing customers with the brand is so strong

It only seems natural to such customers to want their family and friends

to experience the same good feeling or to find the same superior service

Acquisition

Most of us enjoy offering free advice to our friends, neighbors, and acquaintances

Have you ever suggested strongly that another person see a movie that you liked, or

avoid wasting money on a movie that you detested?

Acquisition Unique selling proposition (USP)—the

organization’s distinctive aspects, also known as

its competitive edge, determinant attribute, relative advantage, or differential advantage

When customers see something special in an organization’s offer and personally refer others to the organization,

life is very good for the organization

Acquisition

The CRM system should be tracking such instances by asking new customers

why they selected the organization

As these answers are compiled, many organizations discover just what it is

that makes it special to the target market of loyal customers

Acquisition 4. Affinity Programs: Incentives for

referrals from groups

Affinity marketing—a strategy that is based on marketing to group memberships or associations,

such as the World Wildlife Fund (WWF), or local Parent Teacher’s Associations (PTAs)

where the membership group or association endorses the product and/or co-brands

Acquisition

Group-purchasing programs—leverage the collective buying power of association members

Co-branding—the use of two individual brands on a single product

that targets consumers who are inclined to participate

because they share a common interest or background with others in the membership group

Acquisition

Affinity marketing works best when

the group has common interests and

cohesive values that reinforce long-term relationships

Acquisition

Typically, the company gives a contribution or a small percentage of revenue to the affiliated group

For example,

every time a member of the University of Colorado Alumni Association uses a co-branded credit card,

a small donation is made to the university

Acquisition 5. Affiliation Networks: Paying

commissions for referrals

Affiliate network program—a process to reward people

who act as sales agents for the organization and

who receive a commission on each sale based on that referral

This type of selling may be particularly

effective for small Web sites

that are unable to attract advertising dollars for banner ads

Acquisition

A quick search of the Web yields opportunities to refer others to

Christian material, casinos, adult sites, and may others

This mass marketing concept is based on

mass personalization and the assumption that of 1,000 click throughs,

some proportion will stop and buy

Acquisition 6. Relative Advantage: Give them

something to talk about

Lead users—innovators and early adopters of new technologies;

where, studying lead users can predict

what the future will be like with other customers

The theory of lead users suggests that these innovative customers develop the ideas

for new technological applications of existing products and

for the development of new products

Acquisition

In terms of CRM, a good relationship with lead users may lead to

the discovery of new uses for existing products or

new ways to approach service design and delivery

Customer complaints—the organization’s first opportunity to prevent a customer from becoming lost

Acquisition

If the CRM system is designed to track, compile, and report on problems that customers face, and

if listening posts or other sources are trained to input that information,

then the organization is planning to improve its products and services

Acquisition

Thus, the technology is available to foster the concept of the seamless organization,

where frontline personnel, customers, and line officers can all have access to the information

that is necessary to create new products to meet the needs of defined target groups

Acquisition

7. Switching Costs: Eliminate excuses to stay with the competitor

Promotional offers—an inducement for customers to switch from competitive firms

by easing the transfer task for the customer through a customer centric focus on barriers

For example

An offer can be made to transfer or convert a competitor’s reward program’s redeemable points if the customer switches loyalties

Acquisition

The key element of many offers is to make switching from a competitor easy

A MSN advertisement uses the headline: “With new hassle-free switching tools, leaving AOL is, well, hassle-free.”

The offer indicates that subscribers who

change over will get free switching software

that allows the customer to move his or her AOL Address Book,

Acquisition notify his or her contacts of the new e-mail address, and

forward e-mails from the old address

In addition MSN offers $50 back after three paid months

Acquisition

Product sampling—a trial sample or free trial stimulates brand awareness,

provides information, and allows customers to gain first-hand experience

Product sampling is another way

to reduce the perceived cost of switching from a competitor

People who satisfactorily experience a previously untried brand

have less perceived risk than those who must purchase an untried brand

Acquisition

Money-back guarantee—reduce barriers to entry and,

particularly when it includes a stipulation of a certain length of time

Money-back guarantees promise to refund the purchase price of a product or service if it fails to perform as the customer expects

Acquisition

8. Point of Entry: The initial contact for acquisition

Point of entry—the place when a never-before-consumer becomes a customer or user of the service

For example

At 1.58 pm on Wednesday, May 5, in Houston’s St. Luke’s Episcopal Hospital, a consumer was born

Acquisition Her name was Alyssa J. Nedell, and by the

time she went home three days later,

some of America’s biggest marketers were pursuing her with samples, coupons, and assorted freebies

Procter & Gamble hoped its Pampers brand would win the battle for Alyssa’s bottom

Johnson & Johnson offered up a tiny sample of its baby soap

Acquisition

The logic underlying customer acquisition at point-of entry is as follows:

1. Develop a system to identify who is most likely to enter the product category

2. Determine when entry is most likely, and

3. Be the first to establish a relationship with the first time buyer

Acquisition

Logical entry—develop a system to describe

who is likely to enter the product category at what time and

be proactive in reaching those first-time buyers

Summary

Winback strategies make an effort to reactivate and revitalize relationships with high-value, lost customers

Winback consists of identifying which customers have been lost or are about to terminate their relationships,

identifying reasons for losing a high value customer, and

recontacting lost customers to communicate the benefits or reactivation

Summary The best time to winback customers is before

they terminate the relationship

The sooner a company realizes that a customer is about to defect,

the better able the company is to winback the lapsing customer

Using analytical programs in the CRM system,

it may be possible to identify patterns that signal a customer is abpot to defect

If the CRM does not identify a reason for losing a high value customer,

some attempt should be made to learn why the relationship has soured

Summary

Exit interviews, focus groups, surveys and listening posts may serve this purpose

Re-contacting lost customers should be a key element of any winback strategy

During re-contact, lost customers must perceive a clear benefit from reestablishing a relationship

The reactivation offer is the reason the organization provides the customer to reconnect

Summary

An effective acquisition strategy is best achieved by having an effective retention strategy

The company must understand who among its customers are most loyal and why

It must know their characteristics and how to generate customer loyalty within different market segments

Summary

The 4 Ps of marketing – product, price, place, and promoting – are a company’s marketing mix

Each of these elements must be planned and integrated when the marking objective is to acquire a new customer

However, there are six special aspects of the marketing mix relative advantage from new or improved products/services, eliminating switching costs, and reinforcing customers at the point of entry