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There Are Holes in Your Bucket…

by Rob Addy  |  February 19, 2012  |  1 Comment

Many vendors rely upon their support annuity stream for their very survival. Renewal revenue is also the foundation of growth. Without it, vendors must find and win a continuous flow of new business just to stand still. “Service stickiness” is a measure of the ability of a provider to retain its customers. Minimising revenue leakage is essential.

There’s a hole in the bucket, dear Liza, dear Liza,
There’s a hole in the bucket, dear Liza, a hole.
Then fix it, dear Henry, dear Henry, dear Henry,
Then fix it, dear Henry, dear Henry, fix it.

Non-renewals mean that vendors must find new business to replace the lost revenue due to customer attrition. Studies have shown that the costs of sale associated with attracting new business are significantly higher than the costs associated with retaining existing customers.

With what shall I fix it, dear Liza, dear Liza?
With what shall I fix it, dear Liza, with what?
With straw, dear Henry, dear Henry, dear Henry,
With straw, dear Henry, dear Henry, with straw.

Customers cancel contracts for many reasons, including:

  • Your customers no longer need what it is that you offer
  • They run into financial problems and/or go bust
  • There is a catastrophic service failure (that was handled poorly)
  • They don’t see the value of the service
  • They’ve had their head turned by a rival
  • It is felt that “It’s time for a change”
  • Because they feel that they can… Lack of fear of transition risk
  • Because they think that they can… Lack of contractual penalties

The straw is too long, dear Liza, dear Liza,
The straw is too long, dear Liza, too long,
Then cut it, dear Henry, dear Henry, dear Henry,
Then cut it, dear Henry, dear Henry, cut it.

But that’s not all. There are even more potential triggers for non-renewal. Given the previous and following list it’s a wonder we manage to keep any customers at all :-):

  • They feel neglected or taken advantage of
  • A new executive joins (or is promoted) and wants to be seen to stamp their authority on the business
  • Your primary contact / advocate / champion leaves… and with them all goodwill towards yourselves
  • You fail to get the renewal paperwork in on time and/or follow the customers procurement process
  • The customer initiates a provider consolidation project / procurement initiative
  • They want to enable themselves to negotiate improved rates

With what shall I cut it, dear Liza, dear Liza?
With what shall I cut it, dear Liza, with what?
With an axe, dear Henry, dear Henry, dear Henry,
With an axe, dear Henry, dear Henry, with an axe.

There are no magic pills or silver bullets that can prevent customers cancelling contracts. Providers must diligently deliver the contracted services to satisfy and delight their customers day in and day out if they are to remain loyal. But more than that. They must be seen to be delivering value on an ongoing basis. If the customer sees no value; there is no value!

The axe is too dull, dear Liza, dear Liza,
The axe is too dull, dear Liza, too dull.
Then sharpen it, dear Henry, dear Henry, dear Henry,
Then sharpen it, dear Henry, dear Henry, hone it.

Whilst there are no fool proof formulae or recipes for achieving “service stickiness” the following have been observed in the field and often seem to get a good reaction:

  • Demonstrate tangible business value daily
  • Make your solutions as pervasive as possible
    • Recognize and promote corner case use cases via customer “innovation” awards, case studies / references etc
  • Identify “movers and shakers” within you customer organizations and become an integral part of their future success and career planning

On what shall I sharpen it, dear Liza, dear Liza?
On what shall I sharpen it, dear Liza, on what?
On a stone, dear Henry, dear Henry, dear Henry,
With a stone, dear Henry, dear Henry, a stone.

It’s always nice to be nice but sometimes it’s as important to be careful. There is much talk of the ethics of locking customers in. Free will is obviously a wonderful thing and we wouldn’t want to eliminate that. But this is a business and we want to be sure to influence the free will of our customers to our advantage as much as is ethically possible. Implementing exit barriers such as the following list can help dissuade customers from making the switch:

  • Contract terms and conditions
    • Notice periods, formal cancellation processes etc
  • Technology lock-in (e.g. Skills, integration points etc)
  • Creation of fear, uncertainty and doubt with regard to migration pains
    • Restricted data access (e.g. deliberately limited export capabilities)
    • Waste of previous technology investments
  • Access to premium content streams

The stone is too dry, dear Liza, dear Liza,
The stone is too dry, dear Liza, too dry.
Well wet it, dear Henry, dear Henry, dear Henry,
Well wet it, dear Henry, dear Henry, wet it.

Increasing your level of strategic influence within your customer base is crucial.  Expanding ones sphere of influence and changing the nature of the conversations that you have with your customers is paramount. This can be done by:

  • Talking to more (and different) people
    • Single points of contact are inherently risky
  • Demonstrating their Total Cost of the Service and show them how to reduce it
  • Raising Line of Business awareness of “the art of the possible”
    • Periodic performance assessments, Capability demos
  • Becoming the advisor’s advisor
    • Partnering with the McKinsey’s and Bain’s of the world

With what shall I wet it, dear Liza, dear Liza?
With what shall I wet it, dear Liza, with what?
Try water, dear Henry, dear Henry, dear Henry,
Try water, dear Henry, dear Henry, water.

Increased customer dependency is a good thing. If the customer is uncomfortable about thinking of a scenario without you in it then that is fantastic. Customers can be made more dependent in a variety of ways:

  • Eliminate their internal capabilities
    • De-skill the labour requirement
    • Out tasking of routine activities
  • Increase technology penetration within customer environments
    • Identify unused functions / modules and promote usage
    • Provide high value trusted advisor services
  • Facilitate peer networks i.e. become the social hub
  • Offer full “soup to nuts” services

In what shall I fetch it, dear Liza, dear Liza?
In what shall I fetch it, dear Liza, in what?
In a bucket, dear Henry, dear Henry, dear Henry,
In a bucket, dear Henry, dear Henry, bucket.
There’s a hole in my bucket, dear Liza, dear Liza,
There’s a hole in my bucket, dear Liza, a hole.

The tools and techniques outlined above are only a sample of what can, could, and should be done to improve the stickiness of your support services. Product / Implementation lifecycle plans must also be baked into the plan to accomodate value perception dips in years 2, 3 and 4. There has to be a continuous stream of tangible business benefits and the value must be recognized and accepted by customers if they are to keep the faith.

May your bucket runneth over…

TRKFAM!

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Category: support-strategy  

Tags: customer-constituencies  renewals  stickiness  support-value-chain  trkfam  value-proposition  

Rob Addy
Research Vice President
5 years at Gartner
More years than I care to remember in the IT industry

Welcome to my blog! I post about all things services related from the provider perspective. End-users are welcome to read but please be aware that you may sometimes find its content unsettling. I will endeavour to post frequently (as it's a lot cheaper than a therapist) but please forgive me if other more mundane activities occasionally get in the way...Read my official Gartner bio here


Thoughts on There Are Holes in Your Bucket…


  1. Some good points in here Rob. Good blog.



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