[San Francisco, CA] “Caveat Emptor” — Let the Buyer Beware is an old approach to Sales which places all of the responsibility on the customer for determining whether or not the product being purchased actually works or is in fact suitable for the intended use. Many a purchaser of software over the early years of the industry, especially in the personal computer sector, has found that what they ended up with was not what they thought they were buying — with predictable results. A related ploy is what is known as a “tar-trap,” in which the more the target touches the trap, the more difficult it becomes to extricate themselves from its sticky embrace. While a customer may be seduced into buying and then held by dint of being locked-in afterwards, they soon will see the situation for what it is and begin to actively look for an escape.
An excellent example of this scenario may be found in the recent open publication of a case study on the Internet by a CEO of a former customer of “BadCo.” The customer alleged that very aggressive pressure tactics had been utilized in attempting to force the purchase of a highly expensive upgrade, and that their data had been held hostage as part of the compulsion. There is no question that such pressure tactics can produce profits in the short term. When considered against the long-term, however, those short term advantages can easily turn into definite liabilities for the vendor. While the threat of high-stakes litigation finally extricated the customer’s data, the continuing repercussions of the CEO’s outraged account and specific advice to prospective customers about how to counter the unsavory tactics should not be underestimated.
Locks Can Be Broken
A number of the early SaaS vendors took the position that while the customer data belonged to the customer, the access to it was owned by the vendor. I’ve been recommending for some time that SaaS vendors should offer as easy an “off-ramp” for their customers as they do an “on-ramp.” Data-hostaging can be effective in the short term, but the built-up resentment can be extremely fierce, and when –as inevitably will happen — a competitor comes along with an escape tool, the customer will be highly motivated to take it. In the aftermath of the breakout, the word gets around, the tricks stop working and the reputation of the vendor suffers. What’s worse, the damage from a pattern of reliance on traps and locks is not limited to the shadowed reputation. The usage of such techniques also conditions the vendor to lose interest in creating additional value for the customers. After all, if they’re locked in; why bother?
The Foundation for Retention
It’s not hard to see that balance is important in maintaining relationships over the long term. When both parties equally perceive that it is in their own best interests to continue the connection, the stability of the agreement and the sustainability of profit to both is enhanced. On the vendor side, however, it is unfortunately all too common to find that the performance metrics are weighted towards the short-term, “grow the business” side and that no one is effectively accountable for sustainable profitability levels. Contributing to the risk, the customer is largely left to themselves to figure out if there is more value in continuing than in trying a different solution. Is it any wonder that “churn” levels in a typical business can exceed 20% per year? Especially when no one is responsible for reporting on the costs of the low customer retention rate?
If a competitor came on the scene tomorrow to offer your customers equivalent functionality, an equal price and a painless transition of all their data and customizations, how many of them would take it? With what effects on your company’s profitability over the next six months to a year? If you don’t have a Chief Retention Officer for your company, charged with asking and answering those questions on a regular basis, it’s time you did. And I’m here to help with the definition and establishment of the role.