Customer Retention – Let’s start at the very beginning

May 31, 2015

The customer experience ‘movement’ began in earnest around 15 years ago, with the first books on the subject being published shortly after the turn of the millennium. This is not to say that many of the various aspects of business associated with customer experience, such as loyalty and retention, were not already being practiced. These disciplines were, and in most cases still are, considered to be the remit of marketing departments.

This raises questions as to why marketing did not naturally evolve into what customer experience is today. There are a number of reasons for this, all which largely stem from the ‘functionalisation’ of marketing. As a philosophy, marketing appears to have similar aims to that of customer experience, however falls down on three fronts. Firstly, when marketing became defined by the 4 or 7 Ps, it became too easily to build these into functions. Secondly, with the evolution of business, the now functionalised remit of marketing was too narrow to fully embrace all aspects of customer interface/ experience, such as those covered by customer service and sales. Thirdly, and most importantly, marketing does not sufficiently embrace the concept of time, with the chronological concepts of journey mapping and the customer lifecycle operating as central tenets within Customer Experience Management practice.

Today, many people come into customer experience from a number of different customer-related business disciplines, including Market Research, Web Development/ Digital / User Experience, Sales, Customer Service, Product Development, Channel Management, Branding and Marketing Communications. Thinking about this takes me back to the beginning of my career in customer experience, which started around ten years ago when I started working in the insurance division of a major UK retail bank. I had already worked in various different marketing roles for about 12 years, however this was the first time that I had a role handling something exclusively CX related.

Customer Retention – Let’s start at the very beginning

I had been brought into the business to look at a significant problem they had with customer retention for their home insurance book. Although they were selling home insurance policies to a significant proportion of their new and existing/ renewing mortgage customers, their home insurance book was in sharp decline. Something was afoot. They most certainly had a ‘leaky bucket’. Working together with our underwriting company, I began by undertaking a diagnostic of current business processes and practices.

What we were expecting to find was that at the point at which customers typically ‘leave’ an insurance business, namely at the end of their contract period, there would not be sufficiently robust processes in place to help the business ‘retain’ these customers. Although this was the case, what we discovered during our investigation was far more wide-reaching. A significant proportion of the customer churn was happening a long time before the end of the contract period. Many customers seemed to be leaving the business within a couple of months of having taken out their policy. This was something we labelled as ‘early churn’. It was at this point that I was able to persuade my line managers that my remit needed to extend beyond customer retention into customer experience.

On greater investigation of the issue, it turned out that customers were leaving early because they felt that they didn’t have the right product. In fact, a large proportion of the customers leaving at the end of their contract period were not renewing for the same reason. So why was the wrong product being sold? It turned out that in almost every instance, customers were being sold a premium product that, for most of them, exceeded their requirements. And this was happening because the salespeople were earning more commission from the sale of the premium product. In fact, many customers were telling us that the salespeople were advising them to take out the policy with their new mortgage on a trial basis and then cancel it during the cooling off period. It turned out that the sales commissions were unaffected by early cancellation. We undertook wide-ranging reforms across the business that took the home insurance book from sharp decline back into a growth position.

This example demonstrates the weaknesses of a traditional functional business structure, and highlights the importance of a cross-functional customer experience approach. If, for example, customer retention is treated in a functional way and focuses only on the point in time at which the customer is looking to leave, then the business loses the opportunity to understand and resolve the root causes for the churn, which in the example given here were much sooner in the customer journey. So, sometimes customer retention needs to start at the very beginning…

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Posted by: Ian Williams

May 31, 2015