Monthly Archives: September 2014
Preventing Customer Attrition after a Merger or Sale
Preventing Customer attrition after a merger or sale can be slipper slope for anyone who acquires a business. In any merger or acquisition transaction, customers can quickly become nervous about the level of service they will receive post-closing. Mergers or acquisitions are rife with uncertainty. Customers oftentimes are highly sensitive to that uncertainty. Customers worry about how the transaction will impact their end experience which can cause them to flock to different competitors. How do you prevent customer attrition? This article provides time-tested tips for preventing customer attrition after a Merger of sale.
As an article in the Wall Street Journal explained last year, “Customer defections are a major reason why more than half of all mergers fail to deliver the intended improvement in shareholder value.” The article continued, “The trouble is that merged companies tend to focus primarily on quickly capturing synergies and avoiding major technology disasters. They typically lose sight of customers at the time when they are most likely to bail.”
While there are many components to consider when executing a successful post-merger/acquisition integration, customer focus is critical. Below are three strategies for avoiding customer losses after an acquisition or merger.
Probably the most important strategy to prevent customer attrition is clear and effective communication. If customers harbor negative feelings about the merger, they will be very sensitive to any dips of communication and service. “You cannot afford to miscommunicate with them, or you risk losing them,” explained Bob Hatcher of BetterSell Solutions. “Whether you are a highly efficient ‘low cost provider’ or a high end, consultative ‘trusted advisor’ your clients want to know how the merger will affect them.”
However, not all communication is good communication. A recent Bain study revealed that the “companies that do the best job of retaining customers — and attracting new ones — adopt the customer’s view of the merger as they make important integration decisions. They typically establish teams tasked with evaluating every step in the integration and every change that is made through the eyes of the customer.” In short, “they act as the customer’s advocate.”
This ability for the company to put itself in the customer’s shoes allows it to understand the pain point and then effectively and appropriately communicate around those problems and questions.
Once identified, it is critical for customer-facing employees (typically salespeople) to have consistent answers to these questions. “How your people talk and answer questions from clients and prospects is critical to their retention,” explained Hatcher. “Train them in how to answer questions and to ask questions. Train them to anticipate questioning sequences and to answer them assertively and with confidence. These are the people who will implement your communication plan.”
Watch Out for Competitors
Effective communication also helps with another post-transaction threat to customer retention: competitor thievery. Very often, when competitors hear the news of a merger or buyout, they will try and use customer uncertainty and doubt to their advantage.
A recent Deloitte report reviewed customer attrition in bank mergers, explained, “Another common reason for [a customer] switching was receiving compelling competitive offers from other institutions. Specific experiences in this category include offers of more appealing products, improved returns on savings, loans with lower interest rates or more flexible lending terms, or services that made banking more convenient.” While these examples are specific to commercial banks, the implications hold true for all businesses across all industries.
The best way to mitigate the threat from pilfering competitors is to make clear the value of the newly-combined or newly-acquired business. Firms can “go on the offensive and proactively communicate their strengths and the benefits of the acquisition for the customers,” explained the Deloitte report. “These communications can remain positive and go beyond simply assuring customers that the changes will be minimal and that the service will not be disrupted.” Communicating to customers the reason behind the merger/acquisition and the benefits of it are crucial steps to customer retention. Educate them and get them excited about the impact of the merger is a good strategy for retaining customers…especially key ones. Another good strategy is for the current owner to call key customers and tell them what is happening personally to resolve any concern customers may have. This make them feel important and informs them of the merger.
If push comes to shove, it can also be valuable to arm salespeople with tools necessary to “deliver an exceptional experience during a time of change,” explained Laura Miles and Ted Rouse in a recent Wall Street Journal article.“That sometimes requires empowering employees in new ways — such as enabling them to immediately offer discounts or refunds.” This ability to respond to competitive offers encourages a better customer experience and reduces the likelihood of attrition through competitors.
Sometimes, unfortunately, the reason for customer attrition comes from within. Mergers or acquisitions can cause significant turnover post-transaction, especially in lower middle market transactions where the founders are exiting entirely. In these businesses, personal relationships are critical to the client.
“Potential client loss is an immediate fear when an executive — or in some cases executive team — jumps ship. For service industries like advertising, law, and consulting, where clients are attracted to the human assets rather than the production side of the business relationship, the likelihood of significant client losses when a team leader leaves is even greater,” explained Michelle Rogan in a recent INSEAD article.
One of the best ways to prevent customer attrition thanks to employee turnover is through multiplexity or, as Rogan explained it, “diluting the control held by individual executives by creating a number of ties between the client and the company.” If relationships with clients “were held by several agencies in the firm, no single agency or executive could control the relationship, and the likelihood of client loss following an executive departure [is] significantly lower.”
This strategy may be tricky to implement post-merger, since it may send the wrong signal to customers, businesses with existing multiplexity are inherently more resistant to customer attrition during turnover.
Implementing of these strategies is crucial for customer retention post-close. When implemented properly, they have proven successful at minimizing customer attrition.
Rick J. Krebs
Mergers and Acquisitions Professional and Owner of Business Sales Group