Part One: Improving Customer Attrition Requires As Much Heart As Smart

Customer Attrition

In this two-part post, Ron Ackerman of Ackerman and Meyer Consulting will dive into the value of customer attrition and how organizations can turn an otherwise failing business into a revenue-generating machine.

The Situation

Three years of misses on both the top and bottom lines, customer churn exceeding $56 million annually, and continuous market share losses result in the break up and sale of another industry leader. Approximately 1,500 employees received their pink slips as the company closed its doors for the last time today.

Avoiding Failure

If a firm’s revenue growth is unimpressive, leaders should first look at how they manage current customers for clues to the solution. More often than not, customer attrition is the canary in the mine — a harbinger of poor sales growth. Not surprisingly, many leaders opt for the sex appeal of new sales to solve their growth problem. They often conceptualize that a focus on customer attrition is too defensive, too demoralizing for their “hunters.” In this exciting technology-driven world we live in, it’s imperative to keep in mind that an idea always precedes action. Your idea or philosophy about where the customer fits in your business determines everything about you as a company and ultimately what strategies you decide to implement.

Real Life Reactions

Here are some examples of what happens in many companies faced with customer churn challenges. See if any of these ring a bell…

1.)  When faced with customer attrition challenges one group of managers will take a deep dive into spreadsheet management. All in the name of accountability they start tracking everything imaginable. They will assign task forces for task forces and even measure the number of project teams working on the problem. Sometimes they schedule conference calls before they even know why it’s necessary to do so. Very often marketing functionaries are wrongly obsessed with measuring outbound emails, outbound phone calls, scheduled presentations, and face-to-face sales meetings. This group clamors incessantly about how effective managers track activity and measure everything. Maybe this group should re-read Deming’s book Out of the Crisis to get a sense of what the father of quality had to say about this phenomenon.

2.)  A second group of managers is marginally more thoughtful and tends to use lean process, six-sigma, and continuous improvement initiatives to kick start customer attrition improvement believing that process drives everything. Their teams minimize the kinds of data previously mentioned in favor of critical service incidents, order form errors, call center wait times, and a host of other process variances. Unfortunately, this faction often draws conclusions from an exclusively internal perspective. This unit’s findings mistakenly become the customer’s in a very “we know best” kind of way. Although this cluster usually extolls the virtue of the customer’s voice very rarely do we hear that voice in the final analysis. This crowd still finds its growth strategies de-railed because their perspective about customers is too fragmented. These managers tend to see customer attrition issues as quantitative exercises and often miss the human side of the customer’s decisions.

The next group systematically and purposefully denies that customer attrition is a problem for their organization. These managers work extremely hard at separating facts and particulars about the customer situation. The level of dissection is so granular that it is impossible to understand context or to see important customer decision and use patterns. These managers see the truth that supports the story they want told, but you can be sure their truth is not the complete truth. Make no mistake; this group is often motivated by a combination of internal politics as well as pending investment trade-off decisions. However, this group is also motivated by the need to defend their turf.

3.)  The success culture in many of these organizations encourages managers to focus their energy on positive service events and customer experiences. The critical incidents that chip away at loyalty are decided to be outliers and exceptions that are not reflective of how the organization treats customers. Because it is our nature to unify observations any customer example that does not fit this unification pattern creates a tension that is inconsistent with the beliefs of this managerial group. Leaders grossly over-promote the positive customer experiences exaggerating their significance to such an extent that customers interpret the firm as “out of touch with our priorities”. Customer attrition denial creates a false sense of excellence. It may take awhile to manifest itself in the marketplace; however, customers ultimately describe this group as complacent, misinformed about the quality of the customer relationship, and unresponsive. The term zone of tolerance comes to mind with this faction.

4.)  A relatively small group of leaders reason that customer attrition is not a bad thing. This faction assumes that unprofitable customers either need to be fired or charged draconian dues and fees for the privilege of doing business with the company. This group’s decisions are based on the concept of customer attrition as a purification tool. Managers of this ilk promote their decisions as a spiritual cleansing of the firm based on a mystical Swedenborgian-like alignment with a higher cause. We often see this philosophy exhibited in firms where the sales force had been encouraged and/or commissioned to write new business at any cost. Ultimately the pendulum swings and either operations or finance feels compelled to clean things up. This concept of customer attrition is exceptionally dangerous because of its negative impact on brand image and sales force morale.

Time and again we are reminded that customer attrition is a complex business problem. There is no doubt that customer attrition improvement demands a certain degree of vision, alignment, and execution from both individuals and organizations. However, lacking a moral center that informs the customer attrition strategy there can be no sustainable vision, alignment or execution. So where do we find ourselves? Borrowing from Emerson: “We awake and find ourselves on a set of stairs; there are stairs below us, which we seem to have ascended; there are stairs above us, many a one which go upward and out of sight.” In the context of customer attrition we must decide how we will conduct our customer relationships and whether we go up or down.

In part two of this two-part blog series, Ron will share how organizations and managers (like the ones described above) can define their customer attrition philosophy and the role the customer lifecycle plays in each.