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I overheard a conversation when signing in at the gym yesterday. A member was explaining that he’d been there for 13-years but he’d hardly used the gym recently. He’d been ill all through January and was thinking of cancelling his membership.

The receptionist passed him to the manager who explained that he was on three months’ notice. If he didn’t give notice before the 21st (the day the direct debits go through) he would effectively pay an extra month.

I happened to speak to the gentleman later. He was perplexed by the episode saying that he would end the contract. If there had been the slightest incentive to stay he would have done.

I’m not sure what the customer retention strategy of the gym is. Given that the member pays £60 per month and has been there for 13-years, there must be some financial reason for the gym to keep him active (pardon the pun).

Not all cases are as clear-cut. I remember working for a mobile telephone company some years ago. One of the biggest dilemmas was whether to tell customers that they were coming to the end of their contract. If they remained on their existing contract the margins would be higher (every months rental was profit) than bringing their attention to the availability of an upgrade (where the phone company provided a subsidy towards the new handset).

Times have changed. Customer retention is more of a science for big companies with loyalty tactics in place and retention teams at the ready. Afterall a small reduction in defection rates can make a huge difference to the bottom line. Tom Peters quotes case studies where reductions in defection rates of 5% increased profit by between 25-85% (‘Liberation Management’). It’s all about the lifetime value of customers.

There are, however, many small and medium size companies who are in the same place as my gym. Retention strategies simply aren’t in place or effective. The front-line don’t understand the worth of a loyal customer.

Even in big companies one is left in doubt. I listened to a call at an investment company. A customer was complaining that he had lost £200 due to a delayed money transfer and he was going to move his accounts. He had an investment of £400,000 on which the company was making 1% per year. That’s income of £4000 every year. The investment had 10-years to run. The contact centre advisor adamantly stood his ground as there was doubt on who was to blame for the slow transfer.

Tom writes that ‘managers should know the company’s defection rate, what happens to profit when the rate moves up or down, and why defections occur.’

I’II ask the manager at the gym next time I’m in.

Please also see: http://www.helium.com/items/1591122-customer-service