Customer Retention: A Critical Selling Capability

My friend, Joe Galvin, of SiriusDecisions, recently  introduced me to Matthew Hawk, Ph.D.  (See photo.) Matt is an expert in customer retention, a critical, but often under-appreciated selling capability.  Although customer retention is a subject I’ve been interested in since I first ran a client services organization years ago, my work with Minnesota Life Insurance Company’s (an affiliate of the Securian Financial Group) Group Life Insurance team has elevated my understanding of what world-class customer/client retention is.  Minnesota Life’s Client Relationship Advisor team is so effective, the company’s retention rate is significantly ahead of their closest competitor.  Their superior client service capabilities and the resulting astoundingly high retention rate is a clear and present competitive advantage for them.  (You can read about the details here.)

So in that context, here my interview with Matt.

Dave Stein: In today’s economy, the most valuable customer may well be the one you already have.  What’s different about sales in a customer retention context?

Matt Hawk: When you’re talking about reacting to inbound cancellation calls, they are definitely unique.  As sales conversations, they’re actually inside-out because the conversation literally begins with an objection, “I don’t want your product.”  From a psychological point of view, those are fightin’ words—“I don’t love you anymore!”—so you have to be thoughtful and unravel it from the inside-out, both factually and emotionally, before you offer solutions.  In terms of specific tips, that means asking extra questions and demonstrating you understand the situation from the customer’s point of view before offering any solutions.

DS: What can be done proactively to improve customer loyalty and retention?

MH: That is a great question because once someone has placed a cancellation call—hired a divorce lawyer, essentially—things are looking grim.  Customer retention actually begins with the way a product or service is marketed and sold:  What expectations were set? It continues with the post-sales experience: Were the customer’s expectations fulfilled?  Unfulfilled? Surpassed? And, when they have problems, How is the resolution process? We know for a fact that customers who have problems which are then successfully resolved actually end up being more loyal than customers who never have problems in the first place.  But, it turns out that whether or not a customer perceives that their issue was “resolved” has a great deal to do with how they felt about it.

A recent study by Corporate Executive Board, “Engineering the Low-Effort Customer Experience,” demonstrates that most companies are focused on what the customer has to do to receive service and resolve issues.  But the research clearly shows how customers feel about their experience has a much more powerful impact on retention.  So corporate investments in process improvements may well have a lower ROI compared to helping the front line develop deeper emotional connections with customers.

DS: Isn’t that a little ambitious for what is basically just a routine customer service call?

MH: Maybe, but keep in mind that a customer who intends to cancel was at some time in the past an excited buyer who chose that provider because they thought it was the best choice.  Then, along the way, something changed. It’s a love story gone wrong.  Customers cancel subscriptions and service agreements for three basic reasons:

1. Circumstances beyond control, such as death, relocation, military deployment, job loss, etc.;
2. A shifting perception of value versus the competition; and/or
3. A negative customer experience or perceived slight.

On a psychological level, #2 sometimes reduces to #3, especially in the retention world, and here’s why:  it’s common in the pay television and mobile telephone industries, for example, for providers to offer richer incentives for new customers than for continuing customers.  This can provokes resentment on the part of the loyal customers, especially if they have also have some negative customer experiences.  The cumulative effect puts a strain on the relationship and it may take some help from a retention specialist to help the customer remember why they walked down the aisle together in the first place.

DS: How can you empower salespeople develop deeper emotional connections with customers, especially when the customers may be upset about something, or even intending to end the relationship?

MH: That puzzle has two pieces: content and execution.  As far as content, old skill “soft skills” don’t cut it anymore.   The new frontier is “experiential engineering,” or “behavioral economics.”  It’s a more sophisticated approach based on empirical research reported by scholars such as Robert Cialdini, (Influence: The Psychology of Persuasion) and Dan Ariely (Predictably Irrational).  These principles help generate roadmaps for customer conversations in specific contexts.  The goal is what Cialdini calls “ethical influence.”  It’s not meant to be manipulative or self-serving, but rather to make your case in the best possible light, psychologically speaking.  And you do that by creating a non-threatening conversation in which the customer feels more comfortable, and therefore more open, both to sharing information and to entertaining new ideas and recommendations that may benefit them.

Content is only about 25-30% of the solution, however.  The other 70-75% is execution, meaning training and coaching.

DS: You’ve said before that “the vast majority of sales training is a complete waste of time and money,” and we know from our own research that 85% of sales training projects are judged a failure.  In your experience, why is that?

MH: Sales performance improves when verbal sales behaviors improve, but most people drastically underestimate the level of effort required to execute.  What happens is, new leadership comes in, they assume their predecessors and/or previous vendors didn’t know what they were doing, and they cross their fingers that the next vendor they pick is going to provide the perfect sales model or technology to fix everything.

The reason 85% of sales training projects fail is because changing the collective verbal habits of a sales force is extremely difficult to do, whether it’s a team of 20 field sales reps or 2,000 inside agents.  In some of the call center environments we work in, for example, a customer retention salesperson might have the same 6-minute sales conversation literally 1,000 times in the course of one month.  Call centers are quite literally laboratories of verbal habit-building.  It reminds me of the driving range at the golf course.  And, just like a driving range, the question is, What is the quality and effectiveness of the behaviors that are being ingrained over and over again?

DS: OK, so if you want to help someone improve their swing, how do you do it?

MH: UCLA Coach John Wooden nailed it when he said that, “The four laws of learning are explanation, demonstration, imitation, and repetition.”  You have to be able to itemize exactly what verbal behaviors you want, provide lots of models of excellence for people to imitate, and plenty of opportunities to practice skills in a safe environment.  But Coach Wooden also understood how to apply the psychology influence to his coaching interactions and player relationships.  Effective sales coaches know how to manage the psychology of their coaching interactions just like effective salespeople know how to manage the psychology of sales and service conversations.  It’s all about persuading someone (a customer or an employee) to consider taking an alternate course of action.

DS: How are new technologies impacting customer retention?

MH: Companies collect and utilize more and more information about their customers as time goes on, and they get that information not only from your direct business dealing with that company, but also from other data sources that itemize, for example your behavior as a consumer and your demographic profile.  If you call from a home or mobile phone that is associated with your account, the technology “recognizes” you even before you’ve been connected with an agent.  Some companies calculate your projected “lifetime value” as a customer and developed tiered retention offers: the more valuable you are a customer, the richer the retention incentive.

Using call recording and speech recognition technologies, they can also data mine customer conversations for key words, and even measure stress levels.  That’s on the customer side.  One of the latest moves is to do something similar on the agent side, namely develop an agent profile based on a specific set of criteria, and then matching that agent with a specific customers for maximum affinity.  The technology from IBM is called RAMP and it’s been called “match.com” for customer service.

Matthew Hawk is Principal of Retention Specialists (www.retentionspecialists.com), a sales consulting and training firm specializing in customer loyalty and retention.  Over 10+ years as a consultant, Dr. Hawk has worked with clients including American Express, AOL, AIG, DIRECTV, GE Finance, MetLife, Microsoft, and Toyota.  Retention Specialists applies the principles of behavioral psychology and experiential engineering to both customer and employee interactions.  Dr. Hawk earned his Ph.D. from Yale University in comparative religion.