I like the word ‘Sticky’ it resonates somehow, and says, ‘hard to get rid of’.
As a kid, we had a ‘sticky’ dog in the family.
I remember we once left the dog by accident at a relative’s place across Sydney after a visit. When we realised we had left the mutt, Dad had to drive all the way back, and; no dog. About a week later, ‘Sticky’ turned up home, hungry, bedraggled, and obviously on the losing end of a fight somewhere, but the tail was wagging madly as he stumbled through the gate. Sticky. Don’t you wish customers were similar?
What makes a “sticky” customer?
How can you measure ‘stickiness’?
Customer loyalty, repeat business, lifetime value, brand building, all sorts of cliches refer to the central notion of a “sticky” customer.
A ‘sticky’ customer is someone who for one, or a range of reasons, strongly prefers to buy your product over alternatives.
We all know it is more expensive to find a new customer than it is to sell to an existing one, so it is paradoxical that many businesses spend more on finding new customers than they do on retaining existing ones.
So, what makes a sticky customer should be a subject of some consideration.
Some ideas.
Barriers to exit.
Once you have a customer, create high barriers to exit. Love them to death, remove friction, ensure that you are anticipating their needs.
Amazon is an exemplar.
I am a customer, I buy lots of books, and other odds and ends from them.
What I look at, then buy, and at what price is all recorded, and based on the history, they recommend other things to me, that are often very good recommendations.
Last Christmas, my wife was moaning that she had no idea what to get me, and while I was saying a good business shirt would be nice, my mind was recalling the recommendations I had just received from Amazon. It occurred to me that, holy cow, Amazon knows what I would like better than my wife of 40 years!
High barriers to entry for competitors.
The music industry has been disrupted by digital, the old model no longer works, as the barriers to entry that were high, became low. Anyone could publish their music online. Lady Gaga created new barriers to entry by building a “personal” relationship with a highly targeted audience, “live” on digital platforms. She has replaced one high barrier, the cost of creating and marketing a record with another, the cost of creating a ‘sticky” fan, who shows the “stickiness” by buying, online.
The further from commodity you can take your product, the better. Price does not play a role in the purchase decision, so long as it is in the bounds of the customers’ expectations.
Technical excellence on some key parameter.
Porsche has consistently demonstrated engineering excellence, but was going broke in the 80’s relying on the 911 exclusively. They took the strategic decision to leverage that technical excellence into adjacent areas. The entry level Boxster, then the Cayman, less entry but not the 911, then the 4 X 4 Cayenne, then the four door Panamera, and now is flooded with money.
Reducing customer churn usually offers huge benefits, and now Porsche is delivering a range that meets the preferences of all those who valued the engineering excellence and power of the Porsche brand, across a range of life stages and styles.
KPI Index
It is in this context that I use “the KPI Index.’ This is not your usual key performance indicator, of which customer churn and cost of new customer acquisition should be key ones, but ‘Kept Promise Index.’ The main reason an existing customer will move elsewhere is because you failed to meet their expectations in some way.
The product was not to specifications, delivery was slow or not to promise, there was damage, the price crept up, or the communication was messed up somehow. There are many reasons businesses fail to keep their promises, explicit and implicit to customers, and eliminating them will increase ‘stickiness’.
Detailed understanding of customers.
Some years ago, I worked with an insurance broker on this very topic.
Insurance is not a happy purchase, it is purchased reluctantly, grudgingly. Almost all the brokers marketing effort to retain clients, which on first glance should have been effective, was in the last few months of a contract, but his churn rate remained stubbornly high, squeezing profitability. I spoke to several former clients who had not renewed to try and figure out why, and the picture became clear very quickly.
After they had signed up, often after the broker had made a significant effort, they were left alone until the renewal was becoming imminent, unless they had a claim. They felt they were being ‘used’ by the broker, rather than being delivered a service, and the effort put in just prior to renewal was just a hard sell job, which was resented. We took a portion of the marketing budget and reallocated it to communication in the first 3 months or so of the contract, as well as instituting a regular newsletter type communication which offered all clients a means to stay on top of trends and instances that might affect them and their business. We also amended the renewal communications and spread them out over a longer period. The churn rate dropped rapidly, and the satisfaction scores went up, along with profitability. None of this was rocket science, it was just looking at the problem with a set of outside eyes based on customer experience.
Continually improve your customer interaction processes.
Based on customer feedback and understanding, focus on customer retention, every day.
NPS, and feedback from customers, and former customers, are ways to identify points of potential ‘friction’ in the customer retention processes, and progressively eliminate them.
All the tools trotted out as improvement tools in a factory: Lean, six sigma, and their toolboxes are very useful in diagnosing the customer experience, and improving it.
Generally, these are simple tools, not requiring any sophisticated maths or software, just a bit of simple observation, data collection and analysis.
The very best data source is to ask former customers why they left. That information can give you a wealth of insight into sources of improvement to reduce churn and increase Share of Wallet.
In business, we are faced by the same dilemma every day.
We only have so much resource, time, skill, the question is what do we spend them on?
We can only do so much, way short of everything we can think of, so we all recognise that the trick is to focus on what is important.
The distraction of what is urgent but not important is the greatest threat we have, successful people focus on what is important, but not necessarily urgent, recognising that in doing so they are making choices about what not to do, to the longer-term benefit.
Why would it be any different as we consider how best to retain customers?
