Inside Business: British customers play hard to keep

BRITISH retailers are the biggest users of customer loyalty schemes in Europe yet have among the worst records for customer churning, according to Fred Newell, a database marketing expert. His claim, made at a seminar at Ashridge Management College, does not just strengthen the belief that such initiatives should be renamed "promiscuity schemes" but adds to the growing realisation that customer management is more difficult than it looks.

Mr Newell told the event, hosted by Andata, a company specialising in "customer engagement", that 40 per cent of UK customers say they do not consider loyalty schemes worth while. In contrast, he noted, "Switzerland has the lowest rate in Europe of customer participation in loyalty schemes at about 15 per cent and yet the best record for customer retention, with just 7 per cent of customers switching stores each year. It is strong customer relationship marketing rather than points and programmes that builds loyalty."

However, many companies have made faltering attempts at this in recent years, as has been pointed out by Gavin Barrett, a member of PA Consulting's management group. In a report on the 1998 British Quality of Management Awards, which were co-sponsored by his firm, he said that trying to "relationship manage" customers produced significant negative effects in many organisations.

Moreover, banks and other large organisations are finding it difficult to shift their focus from products to customers.

To Mr Newell, a large part of the solution lies in building a dialogue with customers. "In any situation, if you pay careful attention to what somebody says, you can have a more productive conversation. In the business world, in particular, you should listen to everything the customer says to you and take account of that in any future communications.

"Today's successful businesses need to reinvent themselves around the needs, behaviour and values of their customers. Any lack of knowledge in this area today builds a significant barrier in increasing your profitable sales in the future."

In particular, companies need to realise that these days there is no average customer. Instead, they need to learn to market to the differences.

Mr Newell also noted that firms do not know much about who their most profitable customers are and do not make use of any information they have to target their products more effectively and improve margins. He said: "Any company that doesn't know the difference between its best and worst customers is heading for trouble."

While banks seem to be cottoning on to the fact that as many as 40 per cent of their customers could be costing them money rather than earning a profit, department stores have been at the forefront of finding out who their best customers are and then cementing relationships by treating them better than the norm.

"One Chicago store defines its best customers as those that spend $1,500 a year, shop at least four times and cross-shop in at least three departments when they do," said Mr Newell. "Those customers receive a welcome package followed by quarterly newsletters, postcards, as well as various targeted mailings. They are seldom given discounts and they are not given points."

But while Mr Newell claims that using customer information to charm and delight their best customers can boost businesses' chances of success, others are urging companies to face up to the fact that intense competition also means dropping their least valuable customers.

Last week, Brian Parry, principal consultant with KPMG, told senior directors: "It is a waste of resources to maintain marketing efforts for customers who are not key to a company's success. Precious resources would be better spent on capturing and retaining more high-value customers."