Where Did They Go?

By: Bob Dearing, CFE

Where did who go?  . . . your customer, why did they stop buying? 

For years businesses have invested millions of dollars in research, focus groups, consultants and any number of different methods to better understand their customer base and determine why some customers stop doing business. This investment of time, money and think tank involvement has delivered what is considered by many as the top seven reasons customers stop buying.

For a better understanding of some of these studies watch the following short video and we will dig a little deeper into some of the reasons.    

The video is clear but let’s look at the specifics and see what the loss of a customer really means. The different lost customer categories are identified as:    

• 1% Die
• 3% Move away
• 4% Naturally migrate
• 5% Change on a friend’s recommendation
• 9% Buy cheaper elsewhere
• 10% Chronic complainers
• 68% Move because the people they deal with are indifferent to their needs

What does this mean

Let’s create a hypothetical company with total revenue of $2,500,000.  Our imaginary company has 1,000 active buying customers averaging $2,500 annually. They probably have many more, but our interest now is buying customers.  Let’s assume that during the year 200 of the 1,000 buying customers go away.  Using this case study how does the loss of these 200 customers impact our imaginary company.

Do the math

Of the 200 lost customers 64 fall in the top six categories.  These 64 customers represent lost sales of $160,000.  The other 136 of the 200 customers fall into the last category. This is the category created by “indifference to their needs” and represents lost sales of $340,000. Add it up . . .  Total lost sales in this scenario is a whopping $500,000 or 20% of gross revenue.

Understanding the customer

Realistically the top six categories are going to be more difficult to resolve. We don’t want to ignore some of the more obvious points but the last category, indifference, is where the opportunity lies and where our focus needs to be.  Before we rush head-long into an executive strategy meeting to decide what we are going to do, let’s take a minute to understand more about who the customer really is.  

Transaction and Relationship Customers

Paul Wang, Professor at Northwestern University points out, there are, in general, two types of customers: transaction buyers and relationship buyers. The Database Marketing Institute describes a transaction buyer as one interested only in price and will leave you for a penny’s difference. They have no loyalty and price is their only motivator. They take pride in getting the best price regardless of where they find it and will bid every need. You make very little profit on this type customer.   

The relationship buyers look for a source they can trust. They want a friendly company with reliable products, people who appreciate them, remember them, do favors for them and build a lasting relationship. Relationship customers value these benefits and when they are properly nurtured will stay with you for a lifetime. They are your most profitable customer.

Where do we start?

When customer purchases decline management oftentimes assumes that the reason is a price competitive situation. To compensate they begin to adjust prices or run special price sales. This is not an unusual reaction and one that will probably attract a few more low margin transaction buyers but could do damage to your relationship customers.  The risk you run is if your special sales are not carefully monitored and strategically timed you could begin to turn your relationship buyer into a transaction buyer. You are encouraging them to shop competitors’ prices or search the internet. Not what you want to do.

So, what’s next?

Relationship buyers must always be protected. Do not allow them to slip into the 68% category. They should be treated as a perishable commodity and carefully safeguarded. They are typically not influenced by short term pricing because they are connected to you by a one to one bond. Their needs are not complicated. All they are looking for is respect and a comfortable safe place to do business. You have carefully created that atmosphere and now they have come to expect:

• Products reliability
• Dedicated help
• Excellent service
• Friendly people
• Recognition
• Honest communication
• Appreciation

It’s that simple. Never take your customer and his business for granted.  Always foster an honest and open relationship. The only risk to losing a relationship customer is to change what you are doing and stop treating them the way they expect to be treated. 

Putting on the brakes

Let’s go back to that executive strategy meeting we talked about and work on some of the things we could possibly do to slow the losses. It is important that you get “out in front” early before the customer is gone and you didn’t know until it was too late. Here are just a few pro-active possibilities to consider.

• Identify customer purchasing changes – Review your customer data records. Search for changes quarter over quarter, year over year.
• Talk to the salesperson for insight – They are on the front line and will know if something is wrong.
• Look into any unsettled complaints – This could be an early sign of customer dissatisfaction.
• Any delayed orders – Service and delivery problems can quickly erode customer satisfaction. 
• Check customers last order – Are there any unresolved questions or service issues.
• Are there any credit issues – Resolve them early to avoid more serious problems later.

Encourage them to stay

Most people are creatures of habit. Your job is to be sure, from your standpoint, that habit is with you. Customers stop buying when something changes in your organization or how someone in your company treats them. One of the best ways to keep customers is to always strive to make it too expensive for them to leave or consider going elsewhere. You want to be sure . . .

• Everyone knows who your best customers are and acknowledges them.
• Be sure you communicate. Thank them for their business.
• Create a loyalty program that benefits them.
• Be sure your best service people are engaged with top customers.
• Always be competitive without being a price only house.
• Provide simple, quick, effective ordering systems.