The Watermelon Effect
Adam Joseph, Founder, CustomerSuccessManager.com
Picture the scene – your company’s annual conference is coming up and your MD asks you to nominate a customer who could present on the benefits that they have achieved from your solution. Your mind instantly fixes upon “Customer X” who are mature clients, been the subject of numerous historical case studies, and their usage is “off the charts” positive. In addition, you have worked with your primary contact for so long that you consider them to be a friend as well as a business contact. In short, you are sure that they will jump at your invitation (and tell the MD as much) and immediately pick up the phone to make the request. However, the actual response you receive is something very different – something along the lines of:
“Oh boy – this is going to be a tough one. I was going to call you….not sure how to tell you this….but we’re not going to be renewing when the current contract is up”
Queue stunned silence – all the indicators – both subjective and objective – point to an extremely mutually beneficial relationship so how on earth could they be leaving? How did you miss the warning signs? How are you going to explain this to your MD? What other “safe” customers could also be at risk?
This scenario perfectly illustrates the “Watermelon Effect”; on the surface everything about your client relationship is green and healthy but dig underneath and the reality is that the landscape is almost completely red and that the relationship is in danger. What can you do to identify your clients that are currently suffering from this phenomenon and most importantly, what can you do about it? This blog sets out to identify some of the warning signs and what corrective action you can take.
Are your Customer Health Scores fit for purpose?
A major challenge for anyone in Customer Success is reconciling so many disparate data-sources that indicate the relative health of a client relationship. This can include (but not limited to) product usage data, support tickets, marketing campaigns, commercial information, contractual status, survey results and the regular on-going vendor/customer correspondence.
Customer Health Scores play a vital role in bringing together these various data sources and producing an overall indicator that shows the strength of a client relationship. Whilst this is in principle is positive, like any calculation, the result is only valid if the sum itself is correct. In the case of Customer Health Scores, too much positive weighting can be applied if there is a high level of on-going product adoption.
There is a common feeling that “high product usage = high product value” however this concept is fundamentally flawed. Even if adoption appears to be high, it does not necessarily mean that your customers are getting value. For example, I use my local train service almost every day but it ranks among the worse for reliability and customer service. On the surface my usage of this service is high (there is no alternative), but if given a choice, I would take my business elsewhere.
If your solution offers something similarly unique that no-one else in the market is offering, then clearly this monopoly will force customers to use it. However, when the competition does eventually catch up, any source of frustration that your customers have with your business will lead to them leaving at the earliest possible opportunity.
The key questions to ask when reviewing usage data are “does this fit in with how they should be using our solution?”. Simply adding this to a Health Score and asking CSMs (or whoever is closest to your customer) to enter a “Yes”, “No”, or “More investigation needed”, will ensure that a more appropriate weighting for product usage will be applied to the final score.
Do you have a “Voice of the Customer” Programme?
Ultimately, customers that can clearly demonstrate a strong ROI from using your solution will see you as a “critical” vendor and will continue to renew/grow their relationship. If your solution is viewed as “nice to have” or worse-case, “no longer needed”, then the eventual outcome will be that they downgrade or completely cancel. It’s imperative that your business has a formalised “Voice of the Customer” programme so that you can go beyond simple metrics (i.e. product usage, support tickets, etc) and get the answers you need as to whether they are achieving ROI or not.
In the excellent book “Customer Success” by Nick Mehta, Dan Steinman and Lincoln Murphy, they list the “10 Laws of Customer Success”. The 2nd law is “The Natural Tendency for Customers and Vendors is to Drift Apart” which perfectly illustrates that over time, changes at both the customer and the vendor will mean that what was once a cohesive relationship can be stretched to the point of no return. Having a formalised “Voice of the Customer” programme can be one of your most effective weapons in arresting this “drift” and ensure that both parties remain closely aligned.
A great example of a “Voice of the Customer” programme is Win, Loss & Churn analysis. This approach enables you to interview key decision makers and ask them in-depth questions about what motivates their current and future buying decisions. Whether you run this programme internally or externally (such as with CSM Insight) the feedback gathered enables you to make the necessary changes to keep your customer relationships thriving.
Build a “Broad and Deep” Customer Contact Network
Being over-reliant on too few customer contacts, especially those that do not have the authority to make buying decisions is a significant contributor to unexpected churn. When your existing contacts eventually leave their positions, you leave yourself open to the mercy of others who may understand little about your solutions and their associated benefits. Even worse, their replacements may have a significant bias towards your competitors and look to bring them in at the earliest possible opportunity.
Always ask yourself “if my primary contacts leaves tomorrow, how exposed are we?”. If the answer to that question is anything other than “not at all”, then focus on building and nurturing new relationships at multiple levels.
Not only does this help off-set the risk when your existing contacts leaves but it also provides multiple viewpoints into how your solution is perceived across your customer’s business. This is especially true when it comes to the person who is responsible for actually signing the cheques. Unless they are acutely aware of the associated benefits that your solution provides they are quite rightly going to challenge the need for it. If it is not possible to have a direct relationship with this individual (or team) it is vital that your other contacts are effectively sharing their “user stories” across with the individual(s) responsible for the final sign-off.
How Relevant is your Solution – today and in the future?
When your customer first purchased your solution they clearly believed it could help them solve a business pain and/or achieve a desired outcome. However, how true is that statement today? As referenced above, even high product usage does not indicate how much value your customer ultimately receives.
In addition to conducting “Voice of the Customer” programmes, another very effective method for understanding your client’s depth of usage is to analyse the “Consumption Gap”. As described in my previous blog post on this topic, this term perfectly describes the gap between what your product is capable of verses what your customers are using.
“it’s all well and good having a truly innovative product with regularly scheduled product releases that add a tonne of new enhancements but can your users keep up? Do they have the knowledge, skills and most of all, time to take advantage of these new features or are they destined to gather “digital dust” forever more?
Extracted from the Consumption Gap Blog on CustomerSuccessManager.com
If your customer’s consumption gap is too high (i.e. 80% of your product capability is not being used) there is a significant risk that your customers will seek out cheaper alternatives. Although your competitors may only be able to offer a fraction of what your solution can do, if they can offer the same core functionality, it would be very difficult to overcome this significant obstacle.
To keep the consumption gap at a healthy level, ensure that you are effectively articulating the core benefits of your solution in a language that is going to resonate loudly with your customer. A good rule of thumb when describing your solution is to put yourself in your customers shoes and ask “why should I care?”. If you can describe how each facet of your product is going to make their life easier and more productive then your chances of them actually adopting and getting value from it are going to be significantly increased.
It’s also vitally important that your product roadmap is appropriate for your customers future requirements. Unless up-coming product releases significantly increase your customer’s ROI then ultimately you will lose out to new market disruptors or existing competition who innovate at a faster rate than your business. Ensure that you have a formalised process for collecting customer product feedback and then consolidate this list amongst your team. The final stage is to then prioritise this list appropriately (e.g. by revenue of impacted customers) and then present it to your Product Management team to incorporate into their roadmap.
A commonly repeated warning when making any kind of investment decision is “past performance is no guarantee of future results". This same mantra rings absolutely true for your customers who you consider “safe” today. Don’t let your customers past successes lull you into a false sense of security that they will stay that way forever more, as the “Watermelon effect” will eventually take hold.
Ultimately, the biggest weapon in combating the “Watermelon effect” is having a laser focus on ensuring that your customer achieves a significant ROI from using your solution both today and in the future. Always cast a critical eye over your internal processes that monitor customer health and question whether they are giving you accurate results. Take the time to investigate churned customers who previously looked healthy and see what lessons can be learned to help prevent it in the future.
Watch the "Watermelon Effect" Webinar
Now you've read the blog, check out the video! This webinar, which was produced in association with the "Customer Success Network", gives some examples around some of the major warning signs of the "Watermelon Effect" and what corrective action that you can take.
13/5/2019 01:42:41 pm
Fantastic article! Gives a perspective on the underlying reasons on why the so called "happy" customer decides to discontinue.
6/10/2022 09:01:50 pm
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