What Your Worst Customers Can Teach You About Loyalty – Part 1

In this two-part series, Jill Griffin, an internationally-published author and customer loyalty expert, highlights four difficult customer types and the lessons they provide.

Customers are our best loyalty teachers. And the lessons gleaned from “problem” customers are often rich and long lasting. Consider these four less-than-ideal customer types and some of the loyalty making insights they provide.

Customer Type 1
Rule Breakers: Keep an eye on them

Consider the case of a home shopping channel, which religiously applies the industry’s RFM (Recency, Frequency, Monetary Value) model for scoring customer-buying behavior. A long-time customer had graduated into buying roughly $1,000 per month in merchandise and was now dubbed a “top customer” per the RFM model. Her stair-stepped purchasing trend was exactly what the company strived for, but six months later, the bloom was off the rose. When the customer’s revenue data and returns data (which were stored in different databases) were matched, a surprising finding was revealed: Her returns were sky high. Digging deeper, the company was shocked to discover the customer owned a small gift shop and was using the shopping channel’s merchandise on a consignment-type basis while carefully complying with the company’s 60-day return policy. Sadly, the company’s data silos masked this customer’s true value for too many months.

Kelly Cook, who served as director of CRM for Continental Airlines from 1998-2005, recalled a similar awakening. The first year the airline’s new data warehouse was in operation, the company saved $5 million in security and fraud detection after consolidating more than 45 separate customer databases into two. Before the data warehouse, for example, it was possible for a devious-minded ticket holder with a cancelled flight to get a replacement flight voucher from the airport customer service agent and then immediately go to the phone and call the Continental call center to get a second reimbursement voucher for the same cancelled flight. Not anymore, reported Kelly. Now, Continental’s data warehouse quickly consolidates customer files across channels, dramatically reducing compensation fraud.

Lesson: A timely merging of customer data across silos and channels is a must for detecting unusual buying patterns, diagnosing flawed buyer transactions and the systems that allow them, and encouraging customers to play by the rules.

Customer Type 2
Churn Makers: What makes them churn?    

Sometimes company policies unwittingly encourage customer volatility. Consider the case of the South African mobile telecom company MTN, which Mike Lowenstein and I write about in our book, “Customer Winback.” Experiencing significant customer churn, MTN began investigating whether a churn buster model made economic sense for the company. Their first step was to quantify the churn problem in detail. They closely analyzed the number of handsets MTN sold and compared that number to the number of connected customers.

There was a big gap. Given the number of handsets distributed, the number of new connections should have been much higher. At the time, MTN was offering “sexy” new handsets that were smaller, available in multiple colors and had a longer talk time.  However, MTN did not have a handset upgrade policy. The only way existing customers could get a new handset was to cancel their present contract, give up their phone number, sign a new contract and be assigned a new phone number. Could it be that a lot of the churn was from existing customers canceling and then signing up again as new customers so they could get the upgraded handsets? Eureka! MTN customer research revealed that a whopping 65 percent of the disconnected consumers had never actually left the network.

Reports Margaret Sheridan, who served as Group Marketing Director for MTN during this finding, “When we sat back and looked, the situation was very clear: our sales force and the consumer had a sweet deal. We compensated our sales force based only on new connections, so they were perfectly happy to sign an existing customer up again. And customers were willing because they got a new phone! Our policy of providing new customers with a recording that said, ‘That number has changed, the new number is __.’ made it even more convenient for an existing customer to disconnect and reconnect with a new contract and phone number.”

Lesson: Think loyalty. Measure your acquisition team on retention, not simply on acquisition. Revise policies that attract and reward only short-term relationships. After all, it’s customer retention that creates real value for your business.


For Part 2 of this series, click here.

Jill Griffin is a seasoned independent public board director, internationally-published author, corporate adviser on customer loyalty and keynote speaker. Known to her clients as The Loyalty Maker, since 1988 she has led the Austin-based Griffin Group, which helps firms world-wide to build fiercely loyal customers. Jill is a corporate board director for Luby’s Corporation, has served on the marketing faculty at the University of Texas’ McCombs School of Business and is a frequent guest lecturer there today. Jill is a Magna Cum Laude graduate and Distinguished Alumna recipient of the University of South Carolina’s Moore School of Business from which she holds her MBA.

Jill has published three books in multiple languages and additions. Her work includes “Customer Loyalty,” “Customer Winback” and “Taming the Search & Switch Customer”. For more information about Jill and her books, please visit www.theloyaltymaker.com. She can be reached at jill@theloyaltymaker.com.