If you represent a cell phone provider, insurance company or financial services institution, ask yourself how many new customers your organization acquires every year. Before you answer the question, let’s agree on the definition of a “new customer.”
For many companies, a new customer is an individual or business with whom they have never previously conducted business. However, many “new customers” are in reality recycled customers since they have done business with competitors. I will posit that a new customer is one that is new to your industry entirely, having never used the products or services being offered not only by your company but by your competitors. At this point you might be wondering the reason behind my insistence on such a strict definition. The answer lies in the mindset of the customer. Unlike truly new customers (to the industry), recycled customers come with the proverbial baggage. They have likely been subject to negative experiences over an extended period of time. As such they will have a set of expectations that are not shared by “new customers.”
Recycled customers are a diverse group, and their reason to switch product or service providers should cause organizations to reconsider the impending relationships.
Customers generally switch providers for one of the following the reasons:
1. Deterioration of the Current Provider Relationship – In this scenario, the provider rather than the customer can opt to terminate the relationship due to financial (profitability) considerations
2. Price Shopping – the customer has a low perception of value and seeks a cheaper price elsewhere
3. Change of Taste and Preference – the customer has tired of the competitor’s products and services, and has decided to try something new
4. Shopping for a Better Solution – the customer perceives that the current solution doesn’t adequately serve his needs, and is seeking another provider that can offer a better solution.
The first three reasons for switching present significant challenges and begs the question if organizations truly want to conduct business with these recycled customers. Companies need to determine whether recycled customers with all of their baggage are really ideal customers. These individuals have been disappointed for one reason or another, to the point of switching. They are unlikely to immediately embrace a new or different product and service. They will likely be unwilling to fully engage with their new provider until it has proven that it is different and better then the previous one. Recycled customer baggage becomes an obstacle to an organization’s ability to routinely delight those customers. The relationship is conditional – the new provider must prove to skeptic customers that it can deliver experiences that at the minimum, meet their expectations.
Recycled customers need to be managed differently than new customers. Before establishing business relationships with them, organizations will need to identify their reasons for switching providers. While not easy, identifying these reasons is critical to ensure that relationships will be profitable. After all, competitors might have intentionally terminated relationships, hoping that their former customers bring misery to their competitors. Successfully managing recycled customers might necessitate the creation of targeted experiences. While their past experiences are not a product of the new organization’s doing, they will still have to manage them nonetheless. If these past disappointments are not addressed quickly, they will overshadow the new relationship and limit the potential profitability and duration of the relationship. Organizations will need to frame the relationship in the context of past experiences, and emphasize referrals and evangelization as a medium to demonstrate customer appreciation.
Unlike new customers who lack a history of disappointment, recycled customers carry many negative experiences. In many markets, there are few truly new customers – most are recycled. This reality dictates that organizations pay these customers great attention and that they create experiences in the framework of addressing past disappointments. However, a more critical issue is deciding whether or not this is a customer worthy of your business. If price is a primary consideration, the organization will have to decide if the customer would be a good fit. However, when a recycled customer is selected, it is incumbent on the organization to design and provide experiences that address a long history of challenges and frustrations. The experiences should not only exceed past disappointments, but even exceed their ongoing expectations!