HSE Executive Education

Feb 16, 2009

Seven Strategies for B-to-B Customer Retention

By Professor Ruth P. Stevens
Find out more about our EMBA program.
Professor Ruth P. Stevens will be teaching the module ‘Customer Acquisition & Retention’ on June 27 - 28, 2009.

Business marketers have much to gain from retention marketing. Business customers tend to be fewer in number, and each is more valuable—meaning you can’t afford to lose even one. But how do you keep your customers active and buying from you, versus the competition? How do you prevent defection?

Let’s look at seven strategic approaches to retention marketing that, in judicious combination, can enhance the retention of the business customer base, and, in turn, drive additional revenue and profit.

Meeting and exceeding customer expectations

The first essential strategy in retention marketing is to deliver on the promise made to the customer at the point of acquisition. Meeting customer expectations is simply the meets-minimum requirement for doing ongoing business. Any dissatisfaction with the product, service or experience will be an insurmountable barrier to retention. The best retention marketing in the world cannot overcome product problems.

Customer service

The same logic applies to the question of problem resolution. If a customer’s product or service problem is not resolved quickly and satisfactorily, retention strategies are fruitless.

Studies have shown that strong service levels can have an important payoff in retention, and thus in long-term profits. For one thing, a customer whose problem was identified and resolved has been shown to indicate a stronger intention to repurchase than even a customer who never had a problem in the first place.

Penetration marketing

If you agree that customer acquisition represents an expense, or, more accurately, an investment, and that the customer relationship only becomes profitable upon retention, then penetration is where the firm’s profits lie. Penetration marketing is about maximizing the value of the customer asset by optimizing the sales to current customers, namely by cross-selling and up-selling.

Defection prevention

The single best way to ensure retention is by preventing defection. An alert marketer can easily put in place effective defection prevention strategies. Why? Because defecting customers almost always give off signals of their impending departure—if you are prepared to pay attention. All it takes is that you identify the key variables, and set up tripwires to capture the signals and put in place programs to remedy them.

Continuous relationship selling

Most of us marketers are slaves to one-off selling. To any given customer, we sell, and then sell again, whether it’s an upsell or a cross-sell. We are always hounding our customers to buy, and in the process we not only may make a pest of ourselves, we also incur considerable selling expense.

But what if you could convert a customer to a continuous buying relationship? Persuade the customer to accept an ongoing stream of product deliveries, on terms agreed-upon in advance, and delivered automatically. Essentially, this moves a customer to a replenishment scenario, characterized in recent decades by just-in-time delivery of component parts and raw materials in manufacturing.

Loyalty programs

Taking a page from the consumer world, some business marketers have found success with frequency marketing programs that reward customers for certain behaviors, such as repeat purchase. These programs are not universally applicable in business, but they have their place.

One of the most obvious opportunities for rewards programs is in businesses that mimic consumer purchasing behavior, like office supplies. Outside of classic frequency marketing programs, however, there are abundant ways that business marketers can reward desired customer behavior.

Winback

Despite the brilliance of your retention marketing, at some point, a tragedy may occur: you lose a customer. But this is not a time for despair. In fact, customer defection presents an opportunity. Here’s why.

The first step in reversing a defection is to consider very carefully whether in fact you want the customer back. It could be that this customer is simply not right for you. That the cost to serve is too high. That the margins have been beaten down to the point of unprofitability. It may be better to let the customer move to a competitor who is able to make the relationship profitable.

But if the customer is of value to you, then you need to establish a winback process. The first step in winback is to find out what went wrong and try to fix the problem. In most business marketing situations, this part of the process is the province of customer service or account management. They must assess the situation and apply, very quickly, the kind of solution that will bring the customer back to the fold. It is critical that these reps be knowledgeable and empowered to take fast action.

Conclusion

Loyalty represents the source of all profits. By focusing on providing ongoing value to customers, identifying opportunities to improve that value, preventing at-risk customers from defecting, and reactivating profitable customers when they do defect—these are the marketing activities that will ensure maximum shareholder value.