What’s the difference between a short-term policy and a long-term strategy? All too often, it’s the difference between some limited revenues and sustainable profitability. Folklore has a very apt phrase for it: “Penny-wise, pound foolish.” In more corporate terminology, “The exclusive focus on immediate gains may put long range profits at risk.” In an era where companies constantly talk of the need for 360-degree views of the customer, Customer Relationship Management and of the importance of customer retention, why is it so easy to find myriads of examples wherein valuable customer relationships are mismanaged and lost?
I was recently given an excellent illustration of the impact of overly tactical thinking by my former web-hosting company. By their unwillingness to relinquish the less than $100 worth of revenue from a contract I terminated for their non-performance, the company put an end-date on my domain name registry account (which was worth much more to them), and removed themselves from consideration for any future business with me. The action also earned them a place on my active Do Not Recommend list.
Do’s and Don’ts
My initial conversation with the Support department was pleasant enough. I didn’t have to wait on hold for very long, and the representative that spoke to me was clearly competent and polite. Upon hearing that I had transferred my website to another hosting service because of the Company’s failure to deliver a promised functionality, the rep assured me that a refund would be issued and took the credit card details necessary to handle it. He properly set the expectations by informing me that it could take up to 3 days to process the cancellation at their end, and that the refund might not appear on my card statement until the following month. All well and good, but unfortunately it wasn’t the end of the matter. Shortly thereafter, I received an e-mail from the company that completely contradicted what the rep had told me.
Thank you for contacting [Company] Customer Service Department. We are committed to creating the best Customer experience possible. One of the first ways we can demonstrate our commitment to this goal is to quickly and efficiently address your recent request.
In accordance with our Service Agreement, it is our policy not to issue refunds. However, once the registration period is over you may choose not to renew.
We hope this information has been helpful. However, if you have any additional questions, please don’t hesitate to contact our Customer Service Department. As a [Company] Customer, you are entitled to unlimited access, day or night, to technically skilled Customer Service Representatives who are dedicated to delivering any level of support you may need.
The e-mail, while polite in tone, contains just two meaningful sentences. The first is: “In accordance with our Service Agreement, it is our policy not to issue refunds.“ The second pertinent sentence follows immediately: ”However, once the registration period is over you may choose not to renew.“
The essential message comes across clearly: “We Don’t Care. We don’t care that we didn’t deliver what we promised, and we don’t care if you decide not to continue to do business with us.”
A Clear Strategy — but for What?
The above interaction offers some telling clues about the Company’s strategy. Their target is new business with new customers. In order to maximize their short-term gains, they have chosen to refuse requests for refunds. While one might suspect that they clearly are untroubled by the potential of a high rate of churn in their customerbase, it’s more likely that they’ve never thought through the meaning of their actions. Why? No one in the organization is accountable for Customer Retention.
The mathematics are painfully simple. It costs, on average, 5 times more to find and close a new customer than it does to make an additional sale to an existing customer. When you factor in the cost of acquisition for a customer that “chooses not to renew” after the expiration of the initial sale, the profitability of that customer is quite likely to be negative. But if no one asks about the relationship between long term retention and profitability, if no one is accountable, then the perceived essence of the company’s strategy is almost certain to become: Take the Money and Run.
What do your company’s policies say about your strategy towards your customers?
–The SaaS Customer Retention QuickStat