We’d like to share a short 6-step plan for customer retention, based on some years working in e-commerce. We’re going to find some key customers that you can rescue, and others that you can reward. Then help you reach them and increase sales.

Step 1. Segment your customer base. Rank your customers by amount of spend, then make the cut at a suitable point – somewhere like 10 – 20% of your total customers.  You’ll probably be aware of the 80-20 rule (sometimes named the Pareto rule) which helps explain how a small number of customers are responsible for much of the sales (20% customers drive 80% sales). In the case of e-commerce, it’s often more extreme. We found on some sites that around 10% of the customer base brought in 50% of the revenue (and even more profit if you take into account acquisition costs). When you do the analysis, you may find it’s just a few hundred customers who make a sizable contribution.

Step 2. Identify your loyal customers. Survey your customers using the Net Promoter® Score question. You can find out how to do it in our 2-minute guide to the Net Promoter Score.   Ask “Would you recommend us to a friend of colleague?”, with a 0 – 10 scale. Use the results to understand who in your customer base are “promoters” or “detractors”. You may get up to 30% of your customers responding, so this is a very good way of dividing up the base. Don’t forget to ask for customer comments.

Step 3.  Draw up the matrix. See the chart above. On one axis, plot customer spend (or value). On the other, loyalty. In the top boxes you should have a manageable number of customers who represent a sizable portion of business, divided into those who would recommend you (promoters) and those who would not recommend you (detractors).

Step 4. “Customer Rescue”: Find the customers who are most at risk from defecting: High value customers that scored low ratings. If you do nothing, you risk losing repeat sales, or lose them to a competitor. At worst, they may warn their friends from buying from you. By reading their comments you can understand what the issues are. Don’t waste time – divide up the numbers and get your team on the phone to them within 24 hours of harvesting their comments. Failing that, personal emails will do. Acknowledge any problems, apologise if needed, and ask what it will take to put it right. Often, customers will make allowances for errors – and if you can surprise them by over-delivering on a fix, you may even turn them into evangelists.

Step 5. “Customer Reward”: Identify the high spenders who rate you highly. These are customers who are likely to make a repeat purchase, and with luck, bring you new customers. So give them the tools to do so. In the excellent book  Creating Customer Evangelists (Huba/McConnell) you can get some good ideas on how to turn customers into referral machines – offer new product information, ask for product feedback, give small gifts. Surprisingly, there are more effective actions than  financial incentives.

Step 6. Automate and track the progress. This retention model is not a one-off task – the successful companies bake these process steps into their sales DNA, and monitor which actions are most successful, while reducing the number of detractors. Keeping a customer is far cheaper than finding a new one.

Do the hard work, easily

Yes, you can do all the above steps using manual analysis. You can do it for next to nothing with low cost survey tools, if you have spreadsheet skills and plenty of time.

However, there is an easier way: CustomerGauge automates all the steps for you: segmenting, surveying, reporting, closing the loop. By integrating with e-commerce systems, CustomerGauge can survey every transaction with the Net Promoter Score question, and can often reach 30% response. Thanks to special reporting, the system automatically ranks customers (and repeat orders) by value, showing results in real-time, and providing call- and email-lists for actions. CustomerGauge even tracks open customer issues with internal workflow, and reports on returning customers.

Now all you have to do is come up with some creative ways of keeping your best customers recommending you to others!

CustomerGauge has built-in tools to identify your most loyal and high-value customers

Learn for free

Our upcoming webinar  “Learn how to increase customer loyalty and grow online sales automatically” on 10 Feb 2010 has additional resources on how to keep customers. Details/sign-up here.

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Serge Acker, Senior Director Philips Flagship Store, presented a state-of-the-union address on the Philips webstore at ceBIT last week, to a gathering of hi-tech companies at the DigitalRiver Consumer Electronics Conference.

Following a movie-trailer like taste of the impressive new webstore, Acker highlighted some recent successes (and a few pitfalls) of the recent store migration. Philips were “late to e-commerce” he said, but “determined to do it with excellence“. Success was down to having a clear vision for direct sales, fighting internal battles (especially over channels), a dedicated team, and doggedly measuring the Net Promoter Score (NPS). He gave an example of the importance of customer experience for Philips (“50% of electric shavers are bought as a gift“), and made the point that CE companies today are not just selling televisions any more, they are selling a service.

Answering a question on whether dealers were upset by Philips selling to consumers, Acker said that dealers had lived with direct sales for many years (See also “Retailers Expect Direct Sales“). Customers want choice – some wish to buy direct. He added that selling direct creates “noise” and provides lots of detail in product presentation that ultimately benefits dealers.

The Philips online store Net Promoter Score (as measured by CustomerGauge) had helped them improve customer service, improved products (with voice-of-customer feedback) and grow revenue. Acker had earlier stated that “If we could only do one thing on their Top Ten list, it would be the Net Promoter Score“, and his last piece of advice to the appreciative audience was “Build your NPS, and revenue will follow.”

Contact DigitalRiver for presentation details.

Some other Net Promoter News snippets:

Outsourced invoicer OSG Billing Services announced on its site and by press release that it has achieved a Net Promoter Score (NPS) of 72 percent.

“As a service-based company, OSG Billing Services takes a great amount of pride in receiving such an impressive score,” said Ron Whaley, vice president of sales and marketing. “We are excited to have this metric to measure our customer satisfaction…” Source: Billing and OSS World

There is a new Linked-In group called NPS Ops (Net Promoter Score), set up by Seth Harbaugh of Utah-based service provider DirectPointe. His aim is to openly discuss process improvements, performance documentation and trends in the improvement arena of Net Promoter Score. Joining request should be submitted on the site.