>>Supply Chain Solutions that Deliver
Strategies for
Client Retention
to meet the target of
NextLeap
Learning Points
•
Why is client retention critical to NextLeap?
•
Why are customers more profitable over time?
•
What is the value of reducing the desertion rate and lengthening the
customer’s average lifetime?
•
Why are small customers more valuable than we think?
•
Why does fixing poor service and resolving complaints quickly add
to client retention?
•
What are your strategies for client retention?
•
How do we win against giant competitors?
•
How do we increase customer loyalty?
•
How does customer loyalty expand our business?
Customers for Life
“On average, the CEOs of most U.S. corporations
lose half their customers every five years ……
•
•
•
•
long term customers buy more,
take less of a company’s time,
are less sensitive to price, &
bring in new customers.
Best of all, they have no acquisition
or start-up cost.”
-Frederick F. Reichheld: “Learning from Customer Defections”
Harvard Business Review 1996
Customer Defections
“Most businesses lose about 25 percent of their
customers annually”
- Pepper & Rogers: The One to One Future
“….Good long-standing customers are worth so
much that in some industries, reducing
customer defections by as little as five points –
from, say, 15 per cent to 10 per cent per year –
can double profits”
-
Frederick F. Reichheld: “Learning from Customer Defections”
Harvard Business Review 1996
GE Philosophy – Ladder of Customer Loyalty
GE say companies spend too
much time catching rather
than keeping (retention)
Customers.
Partner
Advocate
Supporter
Intimacy
Client
Customer
Prospect
Target
Retention
Primary Logistics Partner
Primary – We aim to be the customer’s
first choice and largest source of logistics
services in a direct relationship.
Logistics – While we deliver customized
supply chain solutions, services and information
through our worldwide network, our core
transaction business remains freight forwarding,
customs brokerage, order management, and
value-added warehousing.
Partner – We cherish intimate, long-term
relationships that drive mutual benefit.
Client Lifetime Value

Client Lifetime Value vs. Cost of Retention

Effect on Profitability

Cost of Gaining New Customer = 5x Cost of Retention
Why Customers are More Profitable
over Time
3 R’s : Retention, Related Sales and Referrals
Profit from price premium,
Company Profit
Profit from referrals
Profit from reduced operating cost
Profit from increased purchases and
higher balances
Base profit
0
1
Customer
acquisition
cost
2
3
4
5
6
7
Year
Source: Harvard Business Review, “Zero Defections: Quality Comes to Services” (September – October 1990)
Dow Corning Lifetime Value
• In 1996, Dow Corning appointed
UTi for deep sea exports from
Europe to replace 30 suppliers
Profit from Supply Chain
Initiatives
UTI Net Revenue
Profit from referrals – Dow
Corning joint presentations,
Owens Corning, Hpi
Profit from leveraging Dow Corning’s
ocean and air volumes to improve UTi
global yields
Profit from increased purchases (growth in
business) plus global airfreight
0
1
Customer
acquisition
cost
1996
2
3
4
5
6
7
Year
1997 1998 1999 2000 2001 2002 2003
Source: UTi Global Account Management
Base profit
(Oceanfreight)
A Growing Global Partnership
• In 1997, Dow Corning managed
over 300 suppliers globally
Revenue
Growth
4PL Project
• Today, UTi is the single global
provider of supply chain
services to Dow Corning
Raw Materials Sourcing
Latin America Warehouse
Airfreight Forwarding
Customs Brokerage
Ocean Freight Forwarding
Nov. ’97 Jan. ’98
Jan. ’99
Jan. ’00
Jan. ’01
How to calculate Customer Lifetime
CUSTOMER AVERAGE
=
LIFETIME
1
DESERTION RATE
Examples:
Examples:
DESERTION RATE AVERAGE CUSTOMER LIFE
15%
25%
10%
3%
6 YEARS
4 YEARS
10 YEARS
33 YEARS
30%
25%
20%
15%
10%
5%
0%
4
6
10
Years
33
Reduce Desertion Rate: Increase
Profits
25%
15%
Average
Rate
5%
3%
0%
Natural
Loss Zero
Rate Rate
20%
Target Rate
5%
THE CHALLENGE
 Desertion Rate 5%   Profit 30-50%
Source: HBR-”Zero Defections”
A New Paradigm Shift
The “ Customer Life Time Value “
If our average customer life time
is 4 years and your income from
the customer is 12.000 USD /
Monthly….
How much energy will we invest to avoid a loss
of 480.000 USD in customer life time value ?
A New Way of Calculating
Customer Value
Rather than valuing a
customer on “monthly
income,” we now count
each customer’s average
“life time” income.
Suddenly...there are now
very few small customers !
Quality Waste: Service and Complaints
Are we losing customers as a
result of poor service ?
Do you know your
customer retention rate in your branch ?
How do you deal
with customer
complaints?
Potential Revenue Enhancement from
Correcting Service Problems, British Airways
The way our customers
see it and what that means
financially
SEATING ALLOCATION / OVERBOOKING
Seat Allocation
Downgrading / Denied boarding
% of Complainants
Experiencing
the Problem
11.5%
4.4
% of These
who will Not
Repurchase
Revenue Lost
37.5%
22.4
£8,187,750
£1,868,755
OPERATIONAL DISRUPTIONS
Delays
Cancellations Consolidation
Disruption services
7.0
4.2
3.7
23.9
24.4
23.7
£3,172,105
£1,943,080
£1,662,653
BAGGAGE
Baggage Mishandled
4.0
29.8
£2,260,101
CATERING
Food Quality
Food Policy / Menu Composition
3.4
2.7
33.0
28.9
£2,127,377
£1,479,494
CABIN ENVIRONMENT
Smoking
3.1
31.0
£1,82,112
SALES EXPERIENCE
Ticketing / Booking
3.7
24.4
£1,711,761
TOTAL / AVERAGE
48.0%
29.0%
£26,224,187
Source: Norman Klein & W. Earl Sasser, Jr.; British Airways: Using Information Systems to Better Service the Customer,
Boston Harvard Business School, 1994.
The Complaint Escalation Pyramid
The Complaint Process
Stated in Percentages
The Pyramid Described
in Numbers
One in two of these still
dissatisfied complain x
25% of complainants still
dissatisfied x
1 Complaint =
2 Customers dissatisfied at
Vice
middle management level =
President
10 who complain to
middle management =
One in five complain
25% of these customers
are still dissatisfied x
40% Complain
100% of dissatisfied
customers x
Middle
Management
Frontline Service
Providers
50 customers who remain
dissatisfied after frontline
effort =
200 who complain to
frontline =
500 customers who
are dissatisfied
Source:Based on data presented in U.S. Office of Consumer Affairs, Consumer Complaint Handling in America: An Update
Study, Part II (Washington, D.C. Technical Assistance Research Programs Institute, April 1986)
What are your strategies for Client Retention?
Ask yourself :

Does everyone in your branch know your Top 20 Customers?
* Who is Accountable for them ?
* When was the last visit made ?
* Do we measure and communicate our performance?

Do we know and meet the customer’s expectations?

Do we “hustle” to fix any service problems?

Is there a Strategy to develop more services for each client?

Is the relationship one of a Primary Logistics Partner (PLP); if
not, what is our action plan?
Managing the Relationship

Service at 3 Levels
‒ Operational
‒ Tactical
‒ Strategic

Customer Service Teams
‒ Operator
‒ Manager
‒ Senior Executive
Strategy Positioning: Customer Intimacy
1. FORMULA
OPERATIONAL EXCELLENCE
•Low cost supplier
•Process focus
•Products, without surprises and problems
2. TENSION
•Product development
PRODUCT LEADER
•Business processes based on time
•Innovation
3. SOLUTION
INTIMACY WITH THE CUSTOMER
•Customized solutions for each customer.
•Long term customer relationships
•Losing a customer is the worst thing
•Develop customer knowledge & document
procesess that exceed expectations
•Deploy (implement) solutions.
•Empower front line staff that serves the customer
Source: Treacy Wiersema
“Value disciplines”
Tactics against competitors
How to compete and win against the giants
JUDO VS. SUMO
How to Strengthen Customer Loyalty
Customer Retention = Customer Loyalty
Two Dimensions
SUBJECTIVE
OBJECTIVE
We believe the customers feel that we are
Add value to extend CUSTOMER LOYALTY
SOMETHING SPECIAL.
Thereby extending customer life time value
EMOTIONAL CONNECTION
QUANTIFIED VALUE
Focus of Nextleap: Customers for Life
CUSTOMER’S LOYALTY =
Increase the “Life Time”
Value by extending the
Scope of services.
Cape Town Quarterly Reporting
ADDED VALUE INITIATIVES ON THE GO
Client
Buying
Comm
FEC’s
eMpower
Refunds
Antidumping
DCC
FOB
to
EXW
PO
Tracking
Elec
Bond /
Rebate
Register
Custom
Elec
Landed
Costing
Adidas
Pep
Shoprite
Ackermans
Mastersports
Charmfit
Homechoice
Truworths
Arvin/Gabriel
Ideal Fast
Freudenberg
No Action or Progress
Under Investigation
Solution Identified
Implementing Solution
Complete
Customer Loyalty Allows Expansion
of the Business With Existing Clients
Expanding Sales (Sell more services).
Cross Sell
Make the customer reference-able
Price to the market.
Lower cost than new sales (Average in UTi: US$100 per sales call)
Lower cost to serve.
NOTHING HAPPENS AUTOMATICALLY
WITHOUT A FOCUS AND A STRATEGY TO
SUPPORT IT.
Summary – Client Retention



Importance of Partnering
with Lifetime customers
Train and Motivate our
People to support this
initiative
Lead by example and meet
regularly with your
customers
Remember!

Client Loyalty = Company Profitability

Employee Loyalty = Client Loyalty

Employee Satisfaction = Client Satisfaction
Source: “The Service Profit Chain”, James Heskett, W. Earl Sasser, Jr.; Leonard A. Schlesinger.
Our time allocation rule at UTi:
XII
IX
Clients
People
III
Discretionary
VI
1/
3
Clients
1/
3
Our people
1/
3
Everything else