Anurag Mehra

Focus on retaining old customers - they could be your route to more business and new customers through repeat and referral sales.

THE service sector now accounts for more than 50 per cent of India's GDP, up from less than 40 per cent a couple of decades ago. It would therefore seem that customers are getting more services and perhaps better services. More service is clearly visible - we now have mobile telephony, snazzy shopping malls and so on, but are we getting better service? Are we being treated as individual customers with unique needs? Are we getting solutions or just products? Are companies showing respect for our time and our opinions? Unfortunately, most organisations seem to be just focused on "making a sale" rather than providing customer service. And as soon as the sale is made you become the most "unimportant" person to such organisations even if your needs are far from being fulfilled.

Studies have shown that dissatisfied customers will tell 5-10 people about their problems, that's twice as many people satisfied customers would talk to. Add to this the fact that attracting a new customer is on average five times costlier than keeping an old one, and one can imagine how important good customer service is. Our research shows that a 5 per cent increase in customer satisfaction can result in more than 10 per cent decrease in cost of new customer acquisition.

The accompanying diagram depicts the typical output of a customer satisfaction study. In most situations, the percentage of satisfied customers is much higher than dissatisfied customers. However, dissatisfied and angry customers talk to many more people as compared to satisfied customers, thereby negating the good word of mouth generated by satisfied customers.

In the scenario depicted in the diagram, only 4 per cent customers are really angry with the service provider, while 16 per cent are delighted with the service provided. However, their negative impact is many times the positive impact of delighted customers in creating referral customers. Assuming that this service provider is targeting a growth of about 20 per cent in customer base, it will have to acquire at least 7 per cent new customers at a cost that is five times higher than the cost of getting repeat business from existing customers (as shown in Table 1).

If the service provider had a 5 per cent higher base of satisfied customers, it would have resulted in a 20 per cent increase in repeat and referral business. The service provider will have to therefore target only about 5 per cent new customers to achieve its target of 20 per cent growth (as shown in Table 2).

The acquisition cost in that scenario would drop by more than 10 per cent, resulting in a significant savings in sales and marketing budgets.

From the above analysis, it is clear that customer satisfaction and retention is an excellent sales tool that marketing professionals can utilise. However, how many marketers focus on this as compared to the traditional tools of advertising and telemarketing?

In our consulting experience and interactions with various corporates, we have found that most companies have very little focus on customer satisfaction and retention as reflected in the following facts:

Very few companies really listen to their customers. In most cases, there is no institutionalised process of getting customer feedback. Even if there is a process, it is not proactive. For instance, Indian Airlines has a suggestion form in every aircraft that few customers would be willing to fill on their own. Compare this with the approach taken by Jet Airways, where they proactively request their passengers to fill the service tracker and are therefore highly successful in getting feedback on an ongoing basis.

The marketing budgets of most companies have a miniscule allocation for initiatives that increase customer satisfaction and retention as compared to allocation for new customer acquisition. This is despite the fact that the cost of new customer acquisition is five times higher than cost of getting repeat business from existing customers.

Very few companies fix growth targets on existing customer base for their sales personnel. As a result, most sales people go after new customers rather than get more business from existing customers. In most companies, new customer wins are considered more glamorous and rewarding while getting more business from existing customers is "just part of the job." It is no wonder that sales personnel neglect existing customers while focusing on the elusive new leads.

If sales people do not focus on servicing existing customers, marketing budgets are not allocated for customer satisfaction and retention initiatives and customer feedback is not taken on an ongoing basis, what are the chances of achieving higher levels of customer satisfaction and therefore higher repeat and referral business?

Some companies have taken the neglect of existing customers at the cost of new customer acquisition to new heights. Here is a typical conversation of a telemarketer with a prospective customer:

Telemarketer: Hello Mr. Customer, I am calling from so-and-so bank (or credit card company, or telecom company or any other service provider). I have a new scheme that gives you free service (or other free goodies) for the next one year.

Customer: But I already use your service and I am paying for it!

Telemarketer: Oh, really? Never mind, I can offer you another scheme which gives you more free goodies, lower interest rate, blah blah blah ...

Customer: I am not interested in any new scheme. But I have a problem that I want you to resolve.

Telemarketer: Sure Sir, you can call up the toll-free number and speak to any of our customer care executives who would be glad to help (in other words, I don't have the time to solve your problem, I am only interested in selling more services to you even if you don't need them. And by the way, I did not even know that you were a customer before I called. But who cares!).

What should companies do to increase customer satisfaction and therefore repeat and referral business? Here is a list of ten things that could help: