Learning from Customer Defections.

Abstract

U.S. corporations lose half their customers every five years. But most managers fail to address that fact head-on by striving to learn why those defectors left. They are making a mistake, because a climbing defection rate is a sign that a business is in trouble. By analyzing the causes of defection, managers can learn how to stem the decline and build a successful enterprise. Companies often aren't alarmed by defections until it is too late. Why? For one thing, studying failures is painful. For another, they find it extremely hard to unearth the root causes of defections or to get the right people in the organization to do what is necessary to eliminate the causes. But there are mechanisms for learning from defections and turning failure analysis into an ongoing strategic system. The author explains how to define core customers, how to ascertain what share of wallet the company receives from them, and how to get to the real reasons for defections by asking the five why questions. A group of managers heading the failure-analysis program should include the CEO and others whose behavior will probably have to change to eliminate the causes of core-customer defections. Everyone must understand that the diagnostic process is a top priority, and each member of the group should talk to 10 to 25 defectors. Eventually, failure analysis should be made permanent, with employees' financial incentives tied to retention of core customers. The longer customers stay with a company, the more they are worth. The key to customer loyalty is value creation. The key to value creation is organizational learning, and the key to organizational learning, says Reichheld, is grasping the value of failure. [ABSTRACT FROM AUTHOR]