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How to Gain and Retain More Customers



BY DAVID SCHONTHAL, DIRECTOR OF ENTREPRENEURSHIP KELLOGG SCHOOL OF MANAGEMENT @DAVIDSCHONTHAL


I recently had a frustrating experience interacting with an airline (shocking, I know).


I was arranging cross-country travel and booked a ticket with a major carrier, opting for a refundable ticket because I knew my plans might change. Sure enough, they did, so I got on the airline's mobile app and made a reservation that matched my new schedule better.

But when I tried to cancel my existing reservation through the app, I saw only one option: "Apply credit to future flight." I knew there had to be a true refund option, so I called the airline, and after the usual way-too-long wait got through to a representative.


"Yes, you did in fact book a fully refundable ticket, and I can issue that refund," she said after I explained my reason for calling. When I asked why the app didn't offer me the refund option, she joked, "Job security for me."


Her tongue-in-cheek response aside, we both knew why.


The airline, like many other businesses that offer refunds on larger-ticket items, purposely designed just enough friction to make a user reconsider their desire for a refund and enable the airline to avoid losing the revenue associated with the canceled reservation. It's safe to say that other would-be travelers in my shoes would simply have clicked on the "Apply credit" option, whether they believed it was truly the only choice or just didn't want to pick up the phone.


This recent experience stayed with me because in my recent book The Human Element I talk at length about the value of removing friction to lower people's resistance to your new ideas or innovations--by recognizing and removing the multiple kinds of barriers they face.


It's a powerful way to advance your product or service, in contrast to the usual approach of adding appeal by trying to explain to the market how great or unique your offering is. Heightening the appeal of an idea to get people to adopt it is a strategy we refer to as "adding fuel" to the offer.


But what about the opposite situation? Are there times it may make sense to add friction to your product or process (such as deliberately making it more difficult to receive a refund for an airline ticket)? And what are the consequences?


Not surprisingly, this somewhat underhanded approach to friction happens a lot--specifically, the friction of effort, in this case. For example, a colleague recently told me the fitness chain he used to go to required members to send a snail-mail letter--not an email or call--to the corporate headquarters if they wished to cancel weekly personal training sessions they'd signed up for. Worse, the trainer he worked with admitted that the corporate office tended to, "lose a lot of those letters."


While airlines, gyms, and others may benefit in the short term from adding friction of effort to certain processes, I'd argue this is extremely shortsighted. They're effectively trading off short-term gain for lower customer lifetime value.


Why?


For one, no one likes the kinds of frustrating experiences such friction generates. For example, in the future, I may opt for an airline that allows cancelation through their app. The more people who do that, the less the revenue and profits for the carrier in the long run.


Even worse, stories of extreme situations involving friction of effort can become viral social media posts or warrant popular-press articles like this one. Such publicity disasters can ultimately erode significant goodwill--and the value that goes with it.


Think about it this way: People may be less willing to share a story about a friction-free process as a story or social-media post. But experiences that cause noticeable friction, by contrast, lend themselves to the types of memorable narratives people like to broadcast widely, "I was on hold for literally two hours then the system hung up on me!"


To be fair, there are circumstances where introducing friction may make sense--but they are few and far between. For example, an innovative fitness routine should still feel like it requires some effort--"no pain, no gain," right? Similarly, earning a college degree from a reputable university should be associated with hard work. But applying to the school in the first place should be more seamless, as the University of Chicago discovered when they simplified their burdensome admissions process and saw a massive increase in applications overnight.


The bottom line: Customer acquisition costs have never been higher. There is mounting competition in every sector, so look for where you can reduce friction in your offering and take steps to do that in service of greater customer lifetime value.


That way you'll achieve a win-win of better experiences for your customers and greater job security for yourself.

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