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It never ceases to amaze me how organizations pour money into attracting new Customers, yet comparatively they spend little on retaining them. According to research conducted by The School of Business and Management at Pepperdine University: “Numerous research studies indicate that the cost of acquiring a new customer usually runs from two to four times the annual cost of keeping an existing customer”. They conclude that: “Obviously, an effective customer retention strategy translates into profits”. So why is there such an obsession with acquiring new Custom and such scant regard given to existing customers? In this article we’ll get to the root cause of this dichotomy.
To illustrate the issue let me share with you an example of this dichotomy. First, a bit of context: Beyond Philosophy started life in London, England, but quickly received a high demand from the US and thus I swiftly qualified for a “Frequent Flyer Gold card” from my preferred carrier, Virgin Atlantic.
As our US business expanded rapidly in 2005 we opened an office in Atlanta, Georgia. This caused a change in my flight patterns as Virgin did not offer a direct service.
I switched and now travel with British Airways to Atlanta. I did considered staying with Virgin and using the inter-connecting flight they offered, but decided the additional time it would take was not worth it. I guess Virgin hadn’t built enough loyalty with me to justify the additional travel time. As a result of this lack of loyalty, Virgin has lost one of their most highly profitable ‘Gold Card’ Customers.
But here is the strange thing - I expected something to happen, some type of contact, but so far nothing! No letter asking me why I am not flying Virgin any more; no automated email saying that they had noticed a change of flight patterns; no phone call from the Gold member’s team; nothing. For all they know I could be dead!
If they looked at my statement it would show them I haven’t flown anywhere, nothing at all in over a year. So why haven’t they even bothered to find out why? Here the irony, I used to be a big Virgin fan, but as each month slips past and I am still ignored, I lose faith in them. I now realise I am not as important as I thought I was. Here’s the rub; if a gold card member is not important to them, who is?
Essentially by their lack of action they are saying: “We don’t care”. Despite having all my data they can’t be bothered to act on it and find out why they have not retained my custom. Some marketing person in their team, I am sure, has completed a wonderful presentation on the behaviour of Gold Card members: “flights are up or down on last year, blah blah blah…” - but in the trenches, when it comes to the crunch, they don’t actually do anything. The devil is always in the detail.
Virgin has been spending millions marketing their Upper Class campaign to acquire new potential Gold Card members, however, they have not looked at how they can retain their existing customers. This, to me, seems crazy!
A typical root cause of falling customer retention rates is NOT systems, although they can be challenging, it is NOT marketing spend, although this is required, it is the culture of the organization, and the obsession with the “bright and shiny” new business. This is the organizations obsession, it dominates peoples lives; it dominates the KPI’s; and dominates, more importantly peoples’ thoughts and actions.
We see examples of this obsessive behaviour manifest itself everywhere. For example:
• Providing an 800 free phone number for new sales and premium numbers for Customer service
• Marketing spend being lavished on acquisition not retention
• KPI’s being dominated by the new not the existing
• Resourcing call centres to enable sales lines to be answered quickly and Customer service lines answered slower.
• Targeting offers at “new Customer only” to the detriment of the existing Customer.
• Developing organizational cultures that rest the power with Sales or Marketing functions, treating customer services as second class citizens
• Sales calls being answered in the UK, service calls being answered off shore.
Ask yourself, when did you have a party in your office for retaining a customer? People are rewarded for the new where the existing are just taken for granted.
New Customers bring new possibilities and new hope. Organizations everywhere are hoping: “This one will be the big one, this one will make us millions”! The existing Customers are boring and mundane. “They even have the audacity to complain to us!” “Boy are they hard work,” These organizations say, “lets turn our attentions to something more exciting!”
It’s the difference between being single or married. When you are single you go to clubs and meet lots of exciting people and have fun. Then you get married. It’s exciting at first and then it becomes normal. The peaks of excitement are not as frequent but the long term rewards are much greater. You are with someone you can trust; someone you can rely on; someone who will be with you until “death do us part”. Would it be good if you had profitable customers who stayed with you that long? Imagine the growth and imagine the reduction in costs.
But as someone who has been married for 26 years can tell you, marriage takes commitment from both sides - it means compromise. You need to recognise that there will be good times and bad times. It takes work, but is worth it! Many organizations don’t seem to think about life time value. But why not? Consider this: how much has Virgin lost assuming that I was to remain a gold card member for my life time?
The first and foremost issue you need to deal with when talking about Customer retention is the ingrained culture of an organization. No system or solution is going to deal with this, it is NOT an instance fix. This subject needs addressing with the senior team who need to see the light and see what the organization is doing today. A business case needs to be written. You need to have conversations about life time value, not just what it will bring in the next six weeks. Once you have peoples’ attention, there are a number of actions to consider.
Building up you custom is important, but retaining your existing customer base and ensuring their loyalty to your organisation or brand can be just as, if not more, profitable to your company. More care, time and attention needs to be given to an existing customer base to ensure that your organization remains remarkable. That way, the existing customers can work as an unpaid army of sales people, selling your company to new potential custom, through referral on a daily basis. An emphasis on caring for the existing custom can mean that everyone is a winner!
In our next article we will tell you how to retain Customers. This is the subject of our latest book, The DNA of Customer Experience: how emotions drive value. In this we reveal two years of research with London Business School on how to create loyal Customers.
Jo-Rosie is representing www.beyondphilosophy.co.uk/” >Beyond Philosophy™, the leading experts in the Customer Experience, helping organisations think through the ramifications of commoditising market places and the effect this has on their business. They show how Building Great Customer Experiences can provide companies with competitive advantage as well as the ability to save costs by developing and implementing utilising an expert www.beyondphilosophy.com/ourservices/advisoryandimplementation.html > customer centric strategy as well as providing bespoke www.beyondphilosophy.com/ourservices/trainingandeducation.html >customer experience training.
They demonstrate the importance that emotions play in a Customer Experience and suggest strategies and practical steps to unleash the formidable power of evoking positive emotions in customers and how they can be used as a key differentiator – ensuring a fantastic www.beyondphilosophy.com/services/customer-relationship-management/> customer relationship.
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