Client Retention: Can't Live Without You

Wouldn't it be amazing if your firm had such tight relationships with its clients that they'd never leave you for a rival? Here's how to make it happen

Written by Jennifer Myers

When Mark Graham landed his first order from Red Bull Canada five years ago, he knew it was a huge opportunity for his promotional-products distribution firm. The energy-drink maker had just opened a Vancouver office to spearhead a rapid rollout across Canada, and the company had a voracious appetite for promotional apparel sporting its brand.

But the president of Right Sleeve Marketing Inc. also knew the risk associated with this win. In a crowded sector, Graham’s firm could lose out to a lower-priced rival at any moment. Indeed, Toronto-based Right Sleeve had already lost a few large-volume clients that factor just one thing into their purchasing decisions: cost. “We realized we were competing on price, and that’s a shark’s pond to play in,” says Graham. “It’s great if you land the deal, but there’s never any stability.”

Graham saw a way out of the trap of being seen as an easily disposable commodity supplier. To stem the defections and increase what Graham calls his firm’s “stickiness,” he developed a new approach to doing business. Rather than just sell promotional merchandise, Right Sleeve has adopted the role of consultant, helping its clients solve key business challenges. The idea is to build a relationship with customers so deep they won’t even be tempted to switch to anyone else.

As part of the new strategy, Graham pruned his client list. He weeded out low-margin, unstable customers, focusing instead on brand-conscious clients that valued more than just a source of cheap stuff. That proved to be a turning point, says Graham, and was central to Right Sleeve’s retention of top-tier clients such as Red Bull, Expedia and Virgin Mobile. “It was our insurance policy,” he says. “We found that if we offer more value, not only do customers become stickier, but their business with us typically grows.”

Few entrepreneurs go to such lengths to hang on to clients. Many firms have no client-retention strategy beyond hoping that customers will stick around because “we provide great service” or some other vague reason. That’s a mistake at the best of times, but it could spell disaster when recession-battered firms scrambling to do more with less are intensely scrutinizing their supplier relationships. What’s more, various studies estimate that retaining existing customers is anywhere from four to 15 times more profitable than landing new ones. If you’re not routinely asking yourself what you’re doing to increase customer loyalty, you should be.

You might like to think you’re indispensable to your customers. But chances are that you’re actually a preference — and probably a slight one — not a necessity. Cultivating the degree of loyalty that would make your clients loath to dump you takes more than delivering attractive products at decent prices. You need to build something most firms are fooling themselves if they think they have: a genuine partnership with their clients. The foundation for such long-term alliances is deep mutual knowledge and a level of trust that you’ll knock yourself out helping clients enhance their bottom lines.

The good news is that you can develop strategies to make your customers see you as a trusted business partner, not just a supplier. You can boost your clients’ profits by helping to manage aspects of their operations more efficiently. You can communicate with your customers so intensively that you understand their challenges to a degree no rival comes close to matching. You can develop products so well tailored to your clients’ needs that they have no reason to look elsewhere.

Do one or more of these things well, and you’ll reap rich rewards. Becoming the company your customers can’t live without will pay off — in good times and bad — by protecting your firm against a potentially devastating loss of clients.

The key to achieving this protection is to understand that customers invest in business relationships pretty much as they invest in human relationships. To develop a tight bond with a client, you’ll need to spend long hours learning its individual needs, wants and peculiarities.

“Once that has happened, even when other attractive alternatives appear, they tend to be resisted,” says Leyland Pitt, a marketing professor with a specialty in customer loyalty at Vancouver’s Segal Graduate School of Business. “First, because we [the client] don’t want to lose the investment we’ve already made, and, second, because we don’t want to teach the new partner our old tricks.”

There’s nothing to stop your rivals from also taking steps to make themselves indispensable to their clients. But even if they had the presence of mind to adopt such measures, they can only put a wall around their own customers — they can’t climb over your wall.

If you get close enough to clients to achieve partner status, that can change everything, says Joe Calloway, a Nashville-based management consultant and author of Becoming a Category of One: How Extraordinary Companies Transcend Commodity and Defy Comparison. “It’s easier to get to higher-level decision-makers, and can open up other parts of a customer’s business to you,” he says. “It’s much easier to go further within a company.”

This sounds terrific. But how do you get to that level? “The single thing I hammer home is for companies to know more about their customers than anyone else does,” says Calloway. “You really need to get what a company is trying to accomplish, where it’s going and how you can help it get there.”

Truly getting to know clients is central to Right Sleeve’s consulting-based business model. And achieving this ambitious goal requires digging deep to understand customers’ goals and challenges.

“A big part of our approach is gaining an understanding of how a client’s business works,” says Graham. “We’ll go in with information gleaned from the Internet or wherever, and also ask very smart questions.” Right Sleeve crafts these questions to ferret out information on, say, the marketing objectives of a client’s event for its customers. Graham says Right Sleeve uses what it learns to ensure that it supplies promotional goods carefully chosen to resonate with the client’s key target audience.

It’s a strategy Right Sleeve started to develop after its first order from Red Bull, which asked Right Sleeve to supply coolers for a special event hosted by the energy-drink pioneer. Graham says he realized his new client valued Right Sleeve for its ability to supply promo stuff in a hurry, and he’d be vulnerable to a price-cutting competitor unless he could offer Red Bull help managing its business challenges.

Graham’s firm applied this insight when Red Bull later asked for uniforms to outfit its growing distributor salesforce and street-marketing teams across Canada. Meetings with Red Bull’s director of field marketing revealed that the firm wanted fashion-forward clothing that could withstand daily wear and tear, and retain its shape and fit after countless washings — something a basic T-shirt couldn’t do. Right Sleeve tapped into in-house design skills it hadn’t fully exploited to solve this challenge. “We came up with a custom piece of apparel,” says Graham, “so now we’re not dealing with a standard SKU [stock-keeping unit] that can be sourced by any guy, from any factory.”

As Red Bull expanded in Canada, Right Sleeve recognized that its client lacked the systems needed to manage its promotional products efficiently. Ordering uniforms, for instance, was cumbersome. Managers across the country placed orders by e-mail, which Right Sleeve manually entered into a spreadsheet and sent to the supplier to fill. That left an opening for Right Sleeve to propose an idea that drew on another underexploited in-house skill set: expertise in online-retailing applications. The firm stepped up with an e-commerce platform that allowed Red Bull to streamline its merchandise orders. “We set up an online store that allows a team manager in Saskatoon, Halifax, Vancouver and so on to log in and outfit his staff,” says Graham. “This completely relieved Red Bull’s head office of responsibility for managing the administrivia associated with the program.”

Red Bull was so impressed with this system, says Graham, that a year ago the firm awarded Right Sleeve its U.S. business, too. Today, Right Sleeve handles all the uniform needs of Red Bull’s distributors across the U.S. via an online store.

Graham says Right Sleeve’s consultative approach gave it a platform to build a business case for its products and services, and to propose solutions that would make it easier for Red Bull to do business. The latter took Right Sleeve into the sales and distribution side of Red Bull’s operations, effectively integrating it into the drink maker’s business model. “They don’t have a lot of resources internally to manage this stuff,” says Graham. “So, in effect, we became this part of their organization.”

In a sector plagued with unsophisticated “trunk slammers,” adding value has differentiated Right Sleeve. “It turned us into a trusted source that could always get the job done right,” says Graham. The fact that Red Bull sees his firm as a partner has been instrumental, he says, in protecting Right Sleeve from losing what has grown into one of its biggest accounts.

To become the company that clients can’t live without, Bonasource Inc. took a “let’s build it together” approach with Wild Apricot, its member-management software for clubs and associations. The Toronto-based Web-applications developer has devoted enormous effort over the past three years to enlisting the product’s users in a continuous-improvement program. Bonasource figured its exceptional commitment to gathering customer feedback would cement client relationships in two ways. By quickly and diligently acting on clients’ suggestions, the company would make the software ever more effective at meeting customers’ needs. And these customers, by their involvement in providing frequent and detailed feedback, would acquire a sense of ownership in Wild Apricot that would make them far less likely to consider a rival offering.

Executing this strategy is a lot of work. Bonasource interacts with users continually through e-mail, e-newsletters and online customer surveys. It also runs several discussion forums, including one on technical issues, one in which users share experiences and best practices, and another in which clients present their wish lists. “We tell clients that if you want something changed or added to the product, we want you to post to this forum,” says Dmitry Buterin, the firm’s CEO. “On any given day, we probably get a couple of dozen posts. It’s a great source of raw input.”

Bonasource analyzes these more than 700 postings a month, plus the other feedback, and publishes potential enhancements on yet another forum, its “product road map.” Clients then rank proposed upgrades in order of which ones they’d most like to see.

The company uses this fire hose of customer input to drive its software development, and moves with blinding speed to act on clients’ suggestions. Buterin says while most rival firms release product updates once or, at most, twice a year, “we do so every six to eight weeks.” This frequency convinces Wild Apricot users that Bonasource takes their input seriously, he says: “Our clients don’t have to wait for a major release. And as soon as they see that, they’re more willing to contribute.”

Calloway says such continual communication is crucial to making your firm indispensable. “You have to build in a process that constantly forces you to ask, €˜What have we done for customers lately?'” he says. “You have to make contact early and often.”

One of the biggest mistakes companies make is assuming that they already know their customers, says Calloway: “No you don’t. Customers change every day, and you know them as what they were a year ago because you haven’t kept in touch with them.” He recommends implementing at least quarterly informational meetings with clients — not to sell, but to learn what’s new with your customers.

Creating a connection this true with clients takes more than just a few hours a month. But Buterin believes the first-hand knowledge gained makes this time well spent. He responds personally to every client who completes Bonasource’s twice-yearly e-mail surveys. That’s no easy task: last June, the firm received 345 responses. Buterin also contributes regularly to forum discussions, responds to queries and suggestions, and continually asks for detailed feedback. “I make it a priority,” he says. “I probably spend about 20% of my time talking to clients.”

Buterin says his firm’s strong commitment to communication with customers has yielded a 71% client-retention rate. That’s an impressive number, considering that Bonasource doesn’t use any of the hard-nosed retention tactics standard in its sector, such as making it tough for customers to retrieve their data from their supplier’s server or penalizing clients for breaking contracts. And many users not only stay with Wild Apricot but recommend it to others; Buterin says 30% of Bonasource’s clients are referrals.

Calloway points to another true measure that you’re perceived as a partner: customers approach you with ideas, which speaks to the level of trust and confidence within the relationship.

That’s the enviable position Matthew von Teichman is in. Experience at three earlier startups had taught von Teichman that simply creating products and hoping they’ll sell is a recipe for disaster. He applied that learning in 2002, when he founded Life Choices Natural Foods Corp., a Toronto-based maker of kid-friendly organic and natural-food items such as pizza and chicken nuggets. Von Teichman, the firm’s president, sought the advice of major grocery chains Loblaws, Whole Foods Market and Overwaitea Foods on everything from the concept to flavours, packaging and price points.

All three became clients, and remain so today. And von Teichman has built a relationship in which they consider him such a dependable partner, they’ll seek him out when they have new-product ideas. Loblaws was behind Life Choices’ chicken nuggets, for example, and Whole Foods prompted the firm’s whole wheat pasta with flax and white cheddar.

Getting the ear of such heavyweights required some fortuitous timing. Even before launching the firm, von Teichman struck up a relationship with an organic-food buyer at Loblaws whom he had reached after calling the grocer during the Christmas-vacation doldrums. “She had time to talk,” he says. The buyer eventually walked von Teichman through the launch of his first product. This taught him that “this collaborative approach, to get them onside with what we were doing, was the way to go.”

Whole Foods also proved receptive to Life Choices’ products. “They get really, really involved in the process,” says von Teichman. “They’re collaborative, they’re honest and they want companies like mine to do well.”

Since getting through the door, von Teichman has worked assiduously to weave tight-knit relationships with his clients. He continually talks with buyers, getting their buy-in at every stage through to the final product: “I create products that they want, that their consumers want, but that they don’t have. I’m filling a void for them.”

When a product hits the stores, Life Choices pulls out all the stops to ensure that it sells, doing in-store demos, consumer shows and targeting grocery shopers directly with coupons. And if a product doesn’t gain traction, the company doesn’t hesitate to get rid of it.

Von Teichman knows he can’t guarantee that a giant client such as Loblaws, with revenue more than 15,000 times that of Life Choices, would never kiss his firm goodbye. But he has done everything in his power to reduce the risk sharply. “They know my track record,” he says. “There’s a comfort level in the fact that I’ve delivered what they wanted.”

Von Teichman is confident that his responsiveness, performance and ongoing efforts to encourage dialogue mean that even if another supplier comes along with a similar offering, Life Choices will get the nod: “If I can continue to deliver what customers want to see, and the products perform, then they have no reason to look elsewhere.”

Consistency of performance, constant communication, listening to clients, being easy to do business with, providing grand-slam service. Such business basics fall into the “duh!” category, says Calloway. But they’re factors that can make a company indispensable. Get them right, and your customers might soon say, “We can’t live without you.”

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