Think: Frontline Strategies ...  Customer Retention means profits. With the cost of acquiring new customers soaring, customer retention strategies make good sense. The return on investment is up to 10 times higher for investments on customer retention, than for the same dollars spent toward acquiring new customers. It costs four to ten times as much to capture a new customer as it does to provide good service to an existing one.  68% of defecting customers leave because of poor customer service.   The Harvard Business Review states companies can boost profits by almost 100% by retaining just 5% more of their customers. Because customer retention works, especially in times like these, customer service is beginning to show improvements. Businesses in tough times need to keep the customers they have.  The recent release of data by the American Customer Satisfaction Index shows the fourth quarter of 2001 yielded one of the largest quarterly increases in customer satisfaction since measurements started in 1994. But for some, is it too little, too late? We think so. K-Mart recently improved its wilting customer service rankings, as it filed for bankruptcy protection.   While attracting new business remains a critical part of any viable marketing strategy, the company without comprehensive plans to satisfy, retain and cross-sell existing customers begs for trouble. A balanced strategy of finding new customers and keeping old ones is the key to profitability. Nordstrom, long known for high levels of customer satisfaction, has slipped in customer satisfaction measurements since its highest "84" rating for the summer of 1994. Its current rating, "76" for the fourth quarter of 2001, dives 9.5% below the earlier high rating. This retailer showed no improvement during the fourth quarter for the last three years. Over the same period, Nordstrom 4th quarter sales grew slowly, in spite of opening new stores. Fourth quarter revenues this year were only 6.5% higher than two years earlier. Earnings per share for the same time dove 22.5%. This indicates even companies with high customer satisfaction rankings can see profits drop when customer service degrades. As good as Nordstrom is (they are ranked the highest in customer satisfaction among retail and discount department stores), there appears to be a high correlation between customer satisfaction and profits. Existing - especially long-term, high-value - customers notice the degradation and some defect. With 95% of all customer interactions taking place at the "frontlines" - where low level employees in the organization deal directly with customers - business managers have consistently failed to recognize the importance of this interface. Though highly complex, solutions will come in recognizing the absolute necessity of giving "frontline" people the authority and the tools to make customers happy - encouraging repeat business and new purchase activity. One "frontline" most have encountered is the company "call center." Technological developments now allow firms to route their customers to centralized "pools" of employees, who handle calls for all sorts of matters. Whether it be sales, account management, or service, these call centers have become a popular tool for communicating with customers. Statistics show that 89% of customers, after a good experience with the call center, are likely to repurchase a product or service. Interestingly, 79% of customers (10% fewer) who never contact a call center because they have no problems are likely to repurchase a product or service. Only 33% of customers, despite a bad experience with the call center, are likely to repurchase a product. In other words, poor call center experiences are a great way to lose 56% of your customers. Good call center experiences add 10% to customer retention! With statistics like these, the course of management should be obvious. Yet the people manning the frontlines of most companies - those who represent their voice to the world - are among the lowest paid, most disaffected employees in the organization. Often, these are entry-level workers pressured by management to keep talk times low and sales and service volumes high while dealing with angry customers and results-oriented managers. On average they earn $29,500 a year, and most leave—burned out—after 18 months, says Jon Anton, cofounder and director of benchmark research at Purdue University's Center for Customer-Driven Quality. Generally, handling customer service through a call center saves money, and - properly managed - improves service quality. Even so, the typical phone call handled by a "real" person costs the company $5.50. Call center managers stress cost saving measures. A penny saved per call - multiplied by millions of calls handled annually - can really add up to big numbers. Wages are kept at "sweat-shop" levels and training is usually brief. One might wonder if cost-saving tactics at call centers are rational savings in the face of risking 56% customer attrition. Is this the place to cut corners, especially on employee and training expense? We think not. For example, adding 50% to the wages and training expense of the typical call center employee might add 12% in costs to the typical phone assisted call, but a 10% increase in customer retention as a result of highly trained and motivated call reps could be well worth the small extra investment. In a call center handling customers averaging $600.00 in purchases annually - the additional $.69 cost per call (resulting in a 25% increase in business from just 10% of the customers served) would translate to $438,000 in new business annually per call center employee - at a cost increase of about $20,000. With an 8% profit margin, this equates to a 75% return on investment! In spite of the rosy picture, what businesses must do is maintain or improve services while maximizing value for investors. This will take informed segmentation of a firm's customer base, ranking the customer's worth by past and projected value to the organization, and handling customer encounters based upon customer expectations. Certainly, a customer making large purchases more frequently is more valuable than one who makes small, infrequent purchases. The high-worth customer must be pampered, and he or she expects it! But great service is not that simple. As anyone can testify, the largest future customers can be the ones who were yesterday's smallest. Expectations must be met among the smaller customers, as well. The point here is that management must make carefully tuned decisions about customer service, at all points of customer interface - not just call centers. The result must be customer satisfaction at every customer level, to avoid falling off the dreaded precipice to mass customer attrition. In a word, intelligent customer retention strategies are synonymous with doing business today, for without them - businesses in the new millennium will lose customers faster than they can gain them. That's our opinion. If you have your own thoughts on this, send them on. They'll be most appreciated. If you would like to share this message with a friend or business associate, feel free to do so. William H. Thompson Principal The Thompson Group