A bird in the hand

A bird in the hand

Much has been written about the comparative economics of retaining an existing customer vs. acquiring and starting a relationship with a new one. Numerous business books and academic studies reinforce the notion that it is best to "make new friends, but keep the old."

In the transportation industry, costs of acquiring new customers can include sales expenses, bid preparation, a negotiation process that is typically more involved than that with an existing customer, credit checks, establishment of a new account and operational adjustments. Not to mention that new relationships often start small and take time to grow.

Despite the more compelling economics of a "bird in hand," some carriers do not actively manage customer retention or turnover. Further, most compensation packages do not penalize account managers for the loss of a customer. In response to a customer departure, we often hear the argument "that business wasn't worth keeping." In the face of an ever-growing number of core-carrier programs in all modes, the stakes are higher: If you lose your status as a core carrier, you can lose big.

Many carriers conduct market research to gauge levels of customer satisfaction. I do not dispute that this is a vital practice if, for no other reason, to demonstrate to customers that the company cares enough to ask. Of course, many carriers internalize their research results to modify various aspects of their products, pricing, operations and customer care.

However, high levels of customer satisfaction derived from a survey process often do not predict whether a customer will stay or defect. That's right. Customers do not always defect solely because of obvious service problems or better rates from a competitor.

A carrier we worked with years ago had an interesting problem. Although most of the carrier's best customers indicated that they were at least "satisfied" with the key aspects of their service, as well as pricing, at the end of their contract period a number of these "satisfied" customers shifted significant volumes to another carrier or completely defected. What was going on? Clearly, the traditional measures of shipper satisfaction in a simple survey were not a sufficiently strong predictor of customer behavior, at least for some customers.

Additional insights were required to determine what was behind this defection. We probed deeper into the shipper organization and business processes with additional questions in several areas, including the transportation-procurement process and the criteria employed in that process; the philosophy, approach and tools employed in transportation management; their inclination to freely switch carriers or use multiple carriers; feelings about the carrier's account manager at a personal level; the shipper's perception of the carrier; relationships with competing competitors and familiarity with their offerings; and shipper industry economics.

We also looked hard at the rationale employed by the defecting customers, and uncovered a number of relationships that were not obvious. We discovered that buyer behavior was much more complex than could ever be determined from the simple surveys. While many customers had been truly "satisfied" with what they were buying, they were also exploring or open to alternatives. Based on our findings, we were able to develop a "defection risk index" that, after several years of refinement, allows the carrier to identify important, at-risk customers before it is too late.

But identifying at-risk customers is just the first step. The real challenge is determining how to retain that customer.

We have seen a range of customer-retention approaches implemented by carriers across modes. Some believe that shippers can be "trapped" by "sticky" solutions that entail high switching costs, such as adoption of a carrier's unique technology and the shipper's subsequent dependence on it. Other carriers push hard on the personal relationships. I believe carriers can do much more to create and present value-generating opportunities that may entail a departure from the current contractual terms. Carriers that demonstrate a willingness to recommend new ways of doing business will always be welcome and, more importantly, will stand a better chance of continuing a relationship. Carriers can use many approaches, including regular and proactive reporting of their performance, to reinforce their customers' confidence in their decision to use the carrier's services.

Management of customer retention is different from management of customer satisfaction. While carriers with high marks on customer satisfaction indeed have reason to celebrate, they should think about keeping the party short and getting back to work.

David Weinstein is a partner at Norbridge Inc., a strategy-consulting firm specializing in transportation and logistics. He can be reached at (978) 371-3938, or via e-mail at dweinstein@norbridgeinc.com.