How to retain loyal clients

By Bae Jung-hee

Many companies aspire to capture maximum value from one customer by extending the customer lifecycle and activating purchase triggers at the right point in time. If successful, the company’s spending on CRM (Customer Relationship Management) generates lucrative return, in that the organization can build strong base of loyal customers.

Those loyal customers not only contribute to the immediate revenue and profit, but also become enthusiastic advocates and evangelists of the company’s brands. Thus, “two birds” of marketing _ effectiveness and efficiency can be gained at the same time. However, when the customer retention efforts fail to create additional value, the spending becomes expensed, and the profit becomes deteriorated.

So, why an organization fails to build loyal customer base through customer retention programs? The most commonly found pitfalls are lack of scientific approaches and tools such as;

(1) Customer segmentation to distinguish high net worth and high influence customers from others;

(2) Integrated customer touch point management based upon holistic customer insights _ needs, wants, behaviours, desires, value and lifestyle.

(3) Customer analytics to design innovative and impressive customer interactions;

(4) Marketing effectiveness measures and tracking.

I have seen a best practice customer lifecycle management at a small Panasonic Electronics Store called “Yamaguchi” in a small middle class suburban town of Tokyo. The store sells at more than 20 percent a higher price than Mass Merchants in the neighbourhood for the exact same Panasonic TV’s, refrigerators and washing machines

What is more surprising is that the customers are well aware of the price difference, and willing to pay more to maintain the “customer-ship” (like country club membership) of Yamaguchi. How could Yamaguchi justify the price premium?

First, the store has taken a “customer segmentation approach” to select ideal target customers, for example, the elderly with high spending power, and to classify them according to their lifetime value. Most customers start their relationship with Yamaguchi at around the age of 70, because younger wage-earners are more price sensitive, while the above middle class “silvers” are service and human-touch conscious.

Second, the store provides highly differentiated customer interactions. The sales person pays regular visits VIP customers in order to check whether all equipment is in order. During those visits, they help with house chores such as changing light bulbs and moving heavy stuff.

In some cases visits of Yamaguchi sales staff are more often than that of the couple’s own sons and daughters. Yamaguchi also holds various social events for the town residents, such as cooking schools, movie events, flea markets, even organized trips to overseas.

Third, the store imposes quite tight KPI (Key Performance Indicators)’s on salespeople’s performance management. Salespeople in turn apply the same KPI’s when manage their own customers while adjusting service level accordingly. This works as a strong marketing ROI management mechanism.

Yamaguich’s customer lifecycle management is very analogue, and small in scale. For larger companies, the customer lifecycle management will require more complicated data analytics and segmentation, sometimes IT support, and complex cross-functional coordination. However, the philosophies and principles are the same, “segment and classify customers, and treat them differently but in ways that they want to be treated.”

Bae Jung-hee is a partner at Deloitte Korea.