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Short Essays on “Learning from Customer Defections” Matthew A. Brown California University of Pennsylvania
what customers want. Once Reichheld establishes the importance of customer loyalty. selling. he asks a seemingly obvious question. Business leaders and executives intuitively know that customers are important. repeat customers are most valuable to companies. decreasing customer defections by 5% can double profits. in some instances.) In this study. In this context we should look to the metric of customer defections as a pure sign that a business is failing in some way. Much of the study is devoted to understanding why corporations do not use this critical data. . Furthermore. and how to change a business culture that fails to understand the importance of studying customer defections. and promotion. In the process. What is the purpose of the study? (Summary of the study.Short Essays on “Learning from Customer Defections” 2 Question 1. author Frederick Reichheld examines one of the most important. and bringing in new customers. yet apparently least understood business metrics. Understanding how a company is succeeding in the marketplace can be complex indeed. and what competitors are doing. For example. why do businesses not try to learn from customer defections? After all. executives seemingly forget that it is the customers needs that should be driving the business's goals. There is clearly a link then between customer loyalty and the value to a business. buying more.” Business is a kind of balancing act between what a company produces. taking less time. yet seem to lose themselves in bigpicture discussions regarding profits. defections represent “the clearest possible sign that customers see a deteriorating stream of value from the company. Repeat business implies a sort of customer loyalty. customer defections. a seemingly impossible task in today's global economy.
This in turn might mean that the prescribed changes will be more difficult if they are ingrained into the psyche of 1 http://www. The author argues that executives get caught up in driving the satisfaction number higher as a kind of goal into and of itself. Because this is a conceptual study. conceptual thought means thinking about a subject in a different way. and the value of defections as a business metric. corporations lose one half of their customers every five years. arguing that certain customer defections can be economically staggering for a given company. measurable performance. the author continues to study the reasons corporations fail to properly analyze customer defections. including that on average.Short Essays on “Learning from Customer Defections” 3 Question 2. or quantify. the reasons for defections. the study is concerned with two concepts.org/ .S. or procedures than about specific. The author acknowledges that many companies attempt to measure. ideas. The first is customer loyalty. some shocking facts are presented. we might infer that the findings will relate more to attitudes. The author is convincing the reader to think about business profits and revenue with respect to customer loyalty. their customers loyalty through satisfaction surveys. specifically the reasons business culture is unwilling or unable to look to closely at defections as a clear signal of failure. To this end. Does the article present a conceptual study or a quantitative study? What implication does this have for the study's findings? One definition of conceptual study is that it is focused on clarifying/refining networks of conceptual relationships1.conceptualstudy. The second concept is about failure. Basically. The true measure of customer satisfaction is whether the customer returns to do business with the company again. Essentially then. U. Given that customer loyalty is important to a business then.
) The bulk of the study is devoted to rooting out the reasons most corporations ignore. a position that is impossible for a company to recover from. In contrast. Question 3. Most corporate leaders have a vague idea that keeping customers is good. leaders don't fully recognize the relationship between customer loyalty and profits. Although important in their own way. the concept of customer loyalty and what it means for company profits might remain relevant for decades and is the kind of thing leadership can structure a company around. What are the findings of the study? (What did the researcher's find. the majority of the marketplace will be filled with customers having firsthand experience with a company's inferior value proposition. or fail to learn. For example. from customer defections. More broadly stated. This particular conceptual study might produce insights that will be useful for a longer period of time. The author identifies seven principal reasons. but are unaware that reducing defections by 5% can double profits in some cases. The author Reichheld writes that businesses are too focused on . The first reason is that executives are unaware to the extent that repeat customers are valuable. they will likely not guide any long-term strategic thinking by company leadership.Short Essays on “Learning from Customer Defections” 4 the business or its personnel. a company might determine that they lost 10% of their customers in a year because they didn't produce a sufficiently fast phone) are of a limited use. the measurable reasons for customer loyalty (perhaps a phone has a higher data speed. An interesting insight is that eventually. The second reason is simply that it is unpleasant to study failure (what customer defections represent) too closely.
but do not look like it because so much of their custom goes to other organizations. which is defining the core customer. determining which interactions lose customers. When customers shift business away from a company over time. Related to this is the fourth reason. The worry is that. Perhaps a customer is lost due to a call to a customer support representative who is unable to help them. A fifth reason is the difficulty of discovering the root cause of defections.Short Essays on “Learning from Customer Defections” 5 success. The third reason that companies fail to study defection closely is due to the difficulty of defining defection. The author finds that it takes “five whys” to get to the root cause of a problem. It seems important to realize that some company's success therefore may rely less on what the company does and more on. He continues. many of these are not under the company's direct control. for example. . Some customers might be potentially very valuable to a company. although they will learn far more from their failures. Every organization should know that customers who are more valuable to competitors will shift to them over time. economic conditions. or their script isn't flexible enough. that success is a result of many subtle things working just right in the marketplace. This specific kind of analysis is time-consuming and expensive. and working on solutions from there. the gradual defection is less likely to be identified as one. until the root-cause for the customer defection is discovered. Why aren't they trained well? And so on. Why couldn't the CSR help them? Perhaps they weren't trained well. The author recommends mapping out entire life-cycle of customer interactions with a company along a “customer corridor”. the company will not fight to keep customers that are actually more valuable to it. Or perhaps being more lucky than good. in accepting defections.
market research may be intended to help set prices. These effective measurement tools can foster the insightful decision making required for ongoing success. and the ones you wouldn't mind losing. This would require changing incentive structures and even career paths.Short Essays on “Learning from Customer Defections” 6 The sixth reason is often times relevant information about defections does not go to the right people. . The author writes that the first step is building a measurement system to determine if the solutions implemented actually reduce defection rates. Related to this problem. and compounding it. These people can never possibly have the same holistic view of a company's inter-related operations. For example. and can never have the deep insights necessary to provide the most helpful solutions. Or perhaps the people the information does go to define their jobs too narrowly. The author also mentions that getting people to want to learn about failures (and then solutions) is important. not provide a catalyst for better service. most research is done outside the company by specialists and experts. including core customers. The final reason is the difficulty with which an organization has to set up a mechanism for turning the analysis of customer defections into an ongoing strategic system. He continues on other metrics must be created to track the defection rates of groups of customers.
Short Essays on “Learning from Customer Defections” 7 Question 4. Perhaps a relevant adage is to let the product sell itself. A good example of products that are so similar as to be identical are Pepsi and Coke (although I am sure some people would disagree!) By contrast look at how Apple has used differentiation (in terms of laptops and computers) and innovation (with their iPod music players and iPad tablets). When two products are almost identical. the chance a customer will defect is very high. Would the improved products earn a larger market share for the company. promotion or personal selling. and eventually larger profits? This in turn could mean that there is a real incentive for companies to differentiate their products from competitors or even create innovative products or services. which I discuss later. I'd like to focus more on the concept of customer loyalty and less on the finding that customer defection is a failure that is difficult for businesses to deal with. it makes perfect sense. If we think this through logically. Driving customer desires rather than sitting back and watching the market could be the best strategy.) For this question. “If I had asked people what they wanted. What are the implications for future research? (What are the implications of the findings to marketers and researchers. because they value the products more or less equally. customers will remain loyal if you are providing them with more value than they would derive from a competitors products. The most obvious implication for marketers and the business community is that companies should focus on meeting customer needs rather than meeting sales goals. The classic example is illustrated by a quote from legendary automaker Henry Ford. As was established previously. they would have said faster horses. It's certainly worth wondering whether the millions or billions of dollars in advertising couldn't be better spent improving the products they tout. rather than relying on advertisement.” .
Nobody wants to fail. and failure relate to marketing? Well. Certainly not every product that has made it to market has been an absolute success. and it can be personally and professionally devastating to be labeled a failure when an idea or product does not work out as anticipated. How then does taking risks. Due to the nature of the business cycle. or reinvention. some absolute) will be inevitable. What are your thoughts about the article and its findings? How do these thoughts pertain to marketing as we know it? Perhaps the most important thing this article brings to light is how customer defections are an indicator of failure on the part of a company. I think the author really nails it when he mentions that in some companies. Not one single product design has ever sprung fully formed from the mind of an R&D member to the manufacturing line. it is important to realize that failure is a part of business. anticipating the future marketplace. failures (some relative.Short Essays on “Learning from Customer Defections” 8 Question 5. analyzing failure can be hazardous to careers. it is instead more recognizable as the implementation of business practices as a whole. In some cases this means spending years developing products that might never be commercially successful. they must anticipate the needs of diverse populations. Part of the reason is because businesses must anticipate customer needs. The author is essentially arguing that not recognizing and addressing the failure is what is truly devastating to a company. Because anticipation of customer needs and competitor actions is such an integral part of the business climate. When businesses operate on a national or global scale. which can be difficult or impossible. each has required revision. At the same time. tuning. there is of course lead time required before introducing products. Marketing . marketing involves much more than just advertising and promotion.
I don't know if anyone has the perfect solution for holding an organization above the fray. At the same time. one can literally point to a problem area. which could lead to finger-pointing.Short Essays on “Learning from Customer Defections” 9 involves meeting customer needs. it means having an organization that is capable of listening. But I would argue that if the result of a work culture that produces something that customers derive more value from. recrimination may be too easy and too tempting for many people to pass up. in any sufficiently large group of people you will run the gamut of personality types and backgrounds. and doing so in a way better than competitors can. the organization will not learn from this clear (an perhaps expensive) message. Large organizations may inevitably have some people that are argumentative or defensive. for example. they are telling you in no uncertain terms that your business must change to accommodate them. including product creation. In a way. In this circumstance. egalitarian work culture. it must be recognized and accepted that failures will occur. Perhaps for a company on a global scale. After all. one does not not typically think about a faultless. but it certainly worth thinking about and worth exploring for any serious company. With such specialization today. all you have to do is listen. work today is increasingly specialized. requiring more communication between groups to get anything done. . when customers defect. Accepting failures and learning from them can be accomplished by shifting corporate culture away from blame and recrimination. Moving forward can be difficult. Because true marketing encompasses almost everything a company does. then the process could indeed be considered marketing. On an assembly line (or supply chain. Creating this kind of work atmosphere is I'm sure much easier said than done. When one hears the term marketing. or product development team). After all. If everyone in the company is defending themselves and blaming others for failure. such a thing is next to impossible.
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