Cost Of Losing A Customer

Couple weeks ago I had to write a paper that part of it was about the high cost of losing a customer. The argument is that the cost to keep a customer is much more than the marketing cost of acquiring a new one. Also not addressing an un-happy customer and letting him wonder around telling others can cost you much more than what you might think.

Here are some statistics according to BusinessCoach and Score that should get your attention:

• The average un-happy customer will tell 8 to 16 people about it.
• 91% of unhappy customers will never purchase service from you again.
• It costs 5 times more to attract a new customer than to keep a current one.
• If you make an effort to remedy customer’s complaints, 82 to 95 percent of them will stay with you.

The value of a satisfied customer might be close to zero from business point of view as the customer has already bought the service/product. However the value of a loyal customer is priceless. Loyal customers come from satisfied customers so it is vital to keep customers happy.

Bose Example:

I was fortunate enough to have coffee with Steve, the managing director of a large charity foundation (worth over $100 million). He gave me many valuable business and life advices. One of the key topics in our conversation was marketing and customer service. He had strong belief that keeping customers happy at even seemingly high costs is very significant. He gave me an example of his experience with Bose. The story serves as perfect example for our topic here.

Steve had bought a pair of Bose headphones for $100. Couple days after the purchase (using and loving the headphones) he had gone on a business trip. On the airplane the passenger besides him trips over the headphones wire and damages it (making it useless). Steve was very upset about it and in the next airport (while waiting for a connection flight) debated with himself whether to buy another set of headphones or not – They were good headphones but rather expensive too.

He finally decides they are worth another $100 and heads to the Bose shop at the airport. He tells the Bose employee about his experience on the plane and how he wants to buy a new headphone. The employee takes the damaged headphone from him and gives him a brand new one at no charge.

The cost for Bose to give Steve a new headphone was close to nothing. They had already made so much more from him fro the sale of the first $100 headphone. The factory cost for Bose for the new one that they gave away is probably less than $15 too. However look at what Bose has gained by this strategy. Steve (as he stated himself) will be a loyal Bose customer and promoter for life. He will be willing to pay the extra cost for getting a Bose speaker or home theater system even though it might be more expensive than the equipment is worth.

When Steve sees such great customer service and the measures that Bose is willing to take to make sure he is happy, he immediately associates that with future customer service that he will get whether it is buying another Bose product or getting service on one that he owns.

Steve is willing to pay the extra cost of a Bose product because he is getting such unheard-of customer service and the fact that Bose is caring about something other than his money.

Circuit City Example:

If you remember I had huge troubles with Circuit City customer service and wrote about it many time on my blog.I will never be shopping at Circuit City in future (they are going out business anyways). Also imagine all the people that have read my blog posts about them. Do you think they will shop at Circuit City or Best Buy if given the choice?

Bottom line is you should always try to keep your customers happy. Go the extra mile to satisfy them. Reply your emails as soon as you can, be respectful of them when talking to them o the phone, truly try to undertand their position, and be willing to sacrifice.

If you can, surprise them with a service/product (t-shirt, magazine, picture, etc.) that they didn’t expect to get from you. Customers are not always looking for the absolute cheapest place to shop. In fact they are willing to pay a premium price for better service.

• Circuit City Bad Customer Service 3
• Toshiba’s Awful Customer Service

Tagged as: Business