How to Manage Customer Risk

November 10, 2010

How to Manage Customer Risk

Customer risk is a broad term and might have different meanings depending on the industry. If the term is used in a company dealing with any type of lending, the term means “the probability of a customer defaulting on the loan”. If the term is used in an industry not dealing with lending, the term most likely means something completely different.

In this posting, I will be discussing the type of customer risk that any company that provides any kind of product and/or service is most interested in, the risk of “losing customers and their loyalty”

Why is it so important?

In today’s intensely competitive business environment, customer loyalty is a key success factor. In many industries it’s virtually impossible to differentiate between the quality and type of product or service offered. Furthermore, as services have become commoditized, companies spend substantial resources developing better products, seeking to gain advantage over the competition only to be caught up with and even surpassed.

In the jargon of Hollywood, the biggest stars are said to be "bankable." Attach the right mega-star to a production and the chances for box office success skyrocket. The same can be said of customer loyalty. Companies starring as Loyalty Leaders experience tangible, positive business outcomes*. Furthermore, Loyalty Leaders significantly outperform Loyalty Laggards.

So how do I manage customer risk?

First, we need to understand the factors behind before we can come up with a strategy.

Every time you (or any one in your company) communicate with a customer there’s a risk. You may provoke a variety of reactions: **

· dissatisfy the customer – by not fulfilling needs and/or expectations

· satisfy the customer – by satisfying needs and meeting expectations

· delight the customer – by exceeding their expectations in some way.

We can expect loyalty only from customers whom we have delighted with our service and/or product. It is far easier and less expensive to keep an existing customer than attract a new one. That’s not to ignore the quest for new business, but we need to first be attentive of the true value of existing customers for renewals, repeat business and best of all, referrals.

1 – Analyze your business and customers

Analyze your customer base and the services and/or products you offer them. Try to deepen your understanding of the business you are in and who your customers are. Identify who your most lucrative customers are and their commonalities. Search for what would lure them elsewhere; think about how their needs might be shifting and what your competitors are doing. The goal is to develop a more personal understanding of, and relationship with, your customers**

Some of the questions you might ask are

· What brought your customers to you

· What do your key customers want

· What are they actually getting

· How important this is to them

· How can you add further value to them

· How do they compare you against the competition

Get a better understanding of what your customers are buying from you. What is your products and/or services’ real value to your customers? Chances are they have little to do with the actual product you’re selling; it might be prestige, dependability, convenience, quality, youthful image, or security. If we can identify what customers are really buying we can tailor products and services to truly match their wants and needs.

2 – Look again into your business

An aspect often neglected is employees. Your employees will make or break your business. If you don’t take care of your employees, they won’t take care of your customers. Loyal employees have a positive impact on customer loyalty and retention. Employees need to feel part of the business and embrace a positive culture based on cooperation and partnership. Some of the most successful companies implement the following:

· Share the vision

· Empower people

· Encourage healthy collaboration and team work

· Lead by example

· Show gratitude and provide incentives

3 – Employ incentives – where is the candy?

Incentives to attract and keep customers are abundant but I would like to mention the most common.

· Warranties – help reduce the risk customers take by purchasing your product/service. Warranties need to be

o longer in duration: the longer the better

o less restrictive: with the least conditions

o Stronger: cover 100% on the purchase price at the least

4 – Get customers’ feedbacks

Implementing customer surveys (or any type of customer feedback such as focus groups) is one of the best ways to measure customers’ satisfaction and your business’ performance. They help answer the “big” questions and give a broader perspective of how your business is doing. This in turn helps you improve and enhance the business.

In conclusion

No matter how “delighted” your customers are with the services provided, there are bound to be opportunities for your organization to improve upon. Keep in mind that not all efforts to satisfy your customer base will have equal impact. Exerting a better focus on your business and customers will help your organization allocate its scarce resources – people, capital, time, energy, and creativity – toward efforts that will have the highest potential payoff***. There must be a constant quest for improvement and a culture of excellence instilled within the organization, with in mind, the very survival of the business itself.

[By Sofiane]

References:

* Jeffrey W. Marr. (2007, Febuary3). Latest loyalty report further demonstrates ROI of customer loyalty. Retrieved from http://www.walkerinfo.com/knowledge-center/walker-library/article.asp?id=824

**Elisa Mendzela. Managing Customer Risk. Retrieved from http://www.mendhurst.com/managing-customer-risk.html

***Nick Wassenberg. (2009,Jul 13). Beyond Customer Satisfaction: What Really Makes Your Customers Loyal?. Retrieved from http://www.customerthink.com/blog/beyond_customer_satisfaction_what_really_makes_your_customers_loyal

How to Manage Customer Risk.docx

One Response to “How to Manage Customer Risk”

  1. Mike Gann said

    In my organization, when we sell our services to clients, we position ourselves as potential business partners interested in a deep relationship involving overall IT strategic oversight. We don’t try to sell ourselves based solely on reactionary support. Many of our clients enjoy this approach and see value in it – we do tend to be slightly more expensive than our competition. It’s a strategy that has served us fairly well in the last couple of years.

    The drawback is we are more expensive, so most of our sales come from referrals. We’re having to ‘look into our business’ to attract more clients as we’re finding there’s a market of small/medium size businesses that don’t want a trusted technology partner, they just want a repairman. It’s an interesting dynamic since we’re currently coming up with offerings around that space while continuing to support our loyal clients that we’ve built our ‘trusted partner’ relationship with.

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