Stop spending money on retention and start focussing on acquisition
Audience Group's Tom Evans argues that when it comes to the question of retention vs acquisition, the numbers only point one way: loyalty is no longer marketing's star player.
In late 2017, a research report that gained some industry media coverage declared that in 2018, 76% of marketers would prioritise customer loyalty over new customer acquisition.
I mean, that may well be true, but it’s not the way to go. Why? There is no brand loyalty. Not anymore.
Customer retention relies on offering a great product or service, and excellent customer and brand experiences. These are baseline customer expectations in a time of growing promiscuity vs brand loyalty. So yes, brands need to deliver on expectations if they even have a hope of retaining a customer.
But going after brand loyalty by investing in retention campaigns and programs and measurement tools that compromise a brand’s ability to invest in acquisition efforts will hamper growth. Churn happens. A brand’s customers are buying its competitors’ products, too. The upside from focusing on getting more customers is much bigger than the downside of losing a few.
In some industries, churn is part of the process
Reading this report, I couldn’t help think of clients in industries such as early childhood education and childcare services or retirement living, where churn is unavoidable.
Yes, you want your customers’ families to be return customers with subsequent children or retirees, and you want great word-of-mouth references in both situations, but if you focus on customer loyalty too much you’ll be severely limiting your growth.
In such situations, organisations can’t focus their advertising on churn; they need to address brand loyalty with the quality of their product and services, and focus advertising on acquisition.
Chasing brand loyalty is futile
Even in situations where brand loyalty used to maybe exist, things have seriously changed. We all know that – thanks to ample choice and the “seamless omnichannel experience” so many brands strive to deliver – it is easier than ever to switch back and forth between brands when making daily purchase decisions.
Isn’t it counterintuitive, then, for marketers to spend a brand’s money on retention programs when brands themselves are making it easier for consumers to switch?
Mobile access to real-time information and reviews, fed by fellow consumers and brands themselves, means consumers are discerning and constant researchers across a whole range of purchase types, large and very small. Trying to encourage a customer to stay is now arguably much more difficult than convincing someone to ‘hey, try us once’.
One only has to read Trip Advisor, product review sites and brands’ Facebook pages to realise that many consumers have moved past discerning to downright judgemental.
According to a recent survey of 1,000 brand-loyal Australians, one in five said they would switch brands after just one bad customer service experience. A majority (52 percent) of consumers aged 45+ reported having a nemesis brand — a brand they will never do business with again because of the poor customer service they received. It’s not brand loyalty if it can all be thrown away because of one bad experience.
Retailers have to assume that each customer is constantly about to buy something else, and strive to win every shopping journey.
Why swim against the churn?
Brand A has a market share of 10%. It strives to reduce churn from 50% to 0%, and it works. Now Brand A has sold 50% more widgets. But what if it was also true that in their category, 70% of buyers are willing to swap between brands. That means an extra 70% is actually available to win, which is 14x more than current churn.
Brand B is in the services industry, where we know churn can be really light; as low as three to seven percent. Its extensive efforts towards brand loyalty succeed, and Brand B retained all customers. Who cares? The sales gain is so negligible. Brand B would have been better off focusing on acquiring more customers.
Is retention really cheaper than acquisition, especially at the cost of growth?
As marketers we have had it hammered into us that retention is cheaper than acquisition. We have been taught and told that it costs x times more to acquire a customer than to keep one. But how many clients have ever accurately measured it in their own business. For those who believe it – have you actually measured it yourselves?
We’re not buying it. We’re switching.
Even if a brand is already providing a really great experience, someone is still going to churn. What can you realistically do to stop that? At what cost?
Brands: don’t ask your marketing agencies to spend time, effort and money coming up with and implementing a customer retention program. (And if that’s what they’re pitching to you, ask them to try again.)
Your goal should be to go and find new customers. If you really want to grow – go get more customers.
Tom Evans is MD of Audience Group.
Quite a simplistic point of view.
Brand loyalty is possible. It’s just engineered differently. It’s easier to switch brands now (information availability), so you’ve got to find ways to make it hard.
E.g Apple with apps/software, Nike with Nike+ app and similar.
If you switch, you lose ancillary benefits the brand gives. Simplest way to view it.
Optus have started to get this right around content / entertainment in this market.
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Ah, Mazlov’s Hammer. Or “man with hammer sees only nails”
This one-dimensional piece falls prey to the fallacy of false dilemma.
There are shades of grey here.
A brand may choose to focus more or less on acquisition v retention. Or even winback.
They may want to choose different strategies for different customers. But to suggest that a marketing budget for anything but a startup should solely go in acquisition is daft.
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I think that the outcome is oversimplified, and I don’t think any marketer would make a snap-decision to dumb-down retention without data and strategy to support it.
Firstly the cost of retention vs acquisition needs to be clearly understood before a decision can be made on marketing investment. In many industries the cost of retention vs acquisition may not be easily measured, so this may present a challenge!
Secondly, the testing of tactics, timing and channels needs to be conducted to determine the real potential of retention activity. How can we make it compelling and easier to stay with our brand/product?
Have a detailed business case and baseline tracking in place before implementing any radical strategy change like this!
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As you mention this is very industry specific advice. In my work experience the cost of retention is usually not that high assuming you’re keeping up service standards and not gouging. The cost of aquision (advertising, lead aquision, sales and compliance) is considerably higher. As a customer I’m pretty easy to please but once I move on I’m not likely to go back and I’m pretty vocal on why I won’t deal with that company again (you know what you did; Telstra, Qantas, CBA).
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His argument is naive. I bet he always takes his car to the same shop for repair. Loyalty and trust do matter.
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Dr. B if he always takes his car to the same place, why spend any money on retention communications to him? What evidence do you have that spending on marcoms to existing customers equals loyalty?
As mentioned above the product’s utility and experience creates the loyalty, not the marketing communications.
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There are businesses with 20% churn, so if they can fix that, surely that becomes their growth engine?
There are so many reasons we need to reduce customer churn:
For customers – Churn usually results from an unsatisfactory experience and it takes time to hunt for an alternative supplier. Yes, barriers are coming down but still, it means customers have had an experience that is less than satisfactory. Not good for brand or reputation.
For businesses – when there is high churn, customers are being poured into a leaky bucket. It makes more sense to plug the holes, fix the main causes of unsatisfactory churn before investing in new customer acquisition. It will help with brand reputation too.
Keep customers happy and keep them. The bottom line will be better off.
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This is a pretty reasonably articulated argument. But it’s identical to the one proposed by Byron Sharp in ‘How Brands Grow’ – Chapter 11, ‘Why Loyalty Programs Don’t Work’ – isn’t it?
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