Seattle Community

Colin Shaw
Founder, Beyond Philosophy
London, England United Kingdom
Greatly helpful
8.0
out of 10
1 vote

Enhancing Customer Retention and Devising a Better Customer Acquisition Strategy

Recently, the trend for businesses is to spend more money on attracting new customers while spending relatively little on customer retention.

Written May 28, 2008, read 692 times since then.
Closed_info

 

It never ceases to amaze me how organizations pour money into attracting new customers but spend comparatively little on customer retention. Everyone knows it costs far less to retain an existing customer than to use an expensive customer acquisition strategy.

Why, then, is there an obsession with acquiring new customers and such scant regard is given to existing customers when the cost is five times more? Let's examine the root cause of this customer retention and acquisition dichotomy.

A Current Experience: I Could Be Dead For All They Know

To illustrate the issue, let me share with you an example of a recent experience. While I work in London, England, I fly back and forth to the United States often. Needless to say, I quickly qualified for a frequent flyer's gold card from my preferred carrier of choice, Virgin Atlantic. About a year ago, our company established an office in Atlanta, Georgia, and I was now required to travel to this city for work. Unfortunately, Virgin did not offer direct service to the Atlanta airport, and I decided to switch to British Airways. I considered staying with Virgin and using an inter-connecting flight but decided the additional time that it would take was not worth it. I suppose that Virgin had not built enough loyalty with me to justify the additional travel time. As a result, Virgin has lost one of its most highly profitable upper class (business class) customers.

I expected something to happen after I stopped flying with Virgin - some type of contact or otherwise, but I've received no letter asking me why I am not flying with Virgin anymore, no automated email saying that the company had noticed a change of flight patterns, and no phone call from the gold members team. For all Virgin knows, I could be dead! If Virgin looked at my statement, it would show that I haven't flown anywhere in over a year. So, why hasn't Virgin even bothered to find out why? Here is the irony - I used to be a big Virgin fan, but as each month slips past, I am ignored, and I lose faith in the company. I now realize that I am not as important as I thought I was. If a gold card member is not important, then who is? Apparently, Virgin is spending far more money on a customer acquisition strategy than working to retain its existing customers.

Essentially, by Virgin's lack of action, the company is saying "we don't care." Its new customer acquisition strategy is to neglect its proven, loyal customers and focus exclusively on the new ones. Despite having all the data, Virgin can't be bothered to look at it. I am sure I am a statistic somewhere on gold card member behavior. Some marketing person has probably completed some wonderful presentations on whether flights are up or down from last year, but in the trenches, the company doesn't do anything to work for better customer retention. The devil is always in the detail. The company has been spending a great deal of money on a better customer acquisition strategy, including marketing to the upper class; however, integrating better customer retention into its program has not been considered at all.

Identifying the Need for Better Customer Retention

This is what we typically see in our engagements with organizations. The root causes of customer retention are not in basic systems or in the required marketing spend. It is the culture of the organization and the obsession with the new business to highlight a better customer acquisition strategy. We see examples of this obsession behavior manifest itself everywhere:

  • Providing a free 800 phone number for new sales and premium numbers for customer service
  • Marketing spend lavished on a customer acquisition strategy and not customer retention
  • Key performance indicators dominated by new products or services in response to a newly devised customer acquisition strategy
  • Resourcing call centers to enable sales lines to be answered quickly, while customer service lines are answered slowly
  • Targeting offers at new customers only to the detriment of the existing customer
  • Developing organizational cultures that rest the power with sales or marketing functions who treat existing customers as second class citizens
Ask yourself when you had a party in your office celebrating better customer retention. People are rewarded for being new customers while the existing customers are taken for granted and pushed aside. New customers bring new possibilities and hope while the existing customers are boring and mundane. We know them - existing customers even have the audacity to complain to us. It would be good if you had profitable customer who stayed with you for life; imagine the growth and the overall reduction in costs. However, people don't think in timescales, nor do organizations think about lifetime value. Rather, they push for new and improved customer acquisition strategy ploys. Why not? It may be easier, but consider how much Virgin would profit if I were to remain a gold card member for my lifetime.

Formulating a Customer Acquisition and Retention Strategy

Therefore, the first issue you need to deal with when talking about customer retention is to realize that this idea is engrained in our culture, and no system or solution is going to deal with it. Customer retention cannot be improved with an instant fix and needs to be addressed with the senior team. They need to see how the organization is performing daily and be shown some hard numbers and data.

A business case needs to be written formulating both a customer retention and customer acquisition strategy. Have conversations about lifetime value and not just what it will bring in the next six weeks. A business cannot thrive on a well-developed customer acquisition strategy alone; it needs to be highlighted with an effective customer retention plan as well.

Learn more about the author, Colin Shaw.

Comment on this article

  • Filmmaker 
Seattle, Washington 
Dan McComb
    Posted by Dan McComb, Seattle, Washington | Jun 01, 2008

    This is a really interesting article, Colin. Thanks for sharing your insights based on your own experience with Virgin.

    I think the problem with organizations is that it's much harder to plan and measure for the long term than it is for the short term. It's really difficult for someone who is in charge of marketing to devise a strategy that will, for example, bear fruit only on the watch of his or her successor. It's human nature to want results as quickly as possible, rather than taking the long view.

    Privacy concerns aside (it might be a little creepy to get an email from your airline every time you stop flying as frequently), it makes great sense to pay as close of attention to keeping what they've got as they do to getting even more.

  • Business Growth Catalyst -- Coach and Consultant 
St. Louis, Missouri 
Allan Smith
    Posted by Allan Smith, St. Louis, Missouri | Jun 01, 2008

    Colin, Well done! Another egregious example-- Look at how fiercely the cable/dish companies fight to cannibalize each other for the same customers, rather than treating their current customers as if they actually valued them. But then, the multi-channel providers might have to reduce their home service windows to less than 6 hours. Businesses who fail to understand your points are not going to hold on to customers when better offers come along, especially if the product is perceived as a commodity without unique properties.

  • Filmmaker 
Seattle, Washington 
Dan McComb
    Posted by Dan McComb, Seattle, Washington | Jun 01, 2008

    Hey Allen, great job incorporating video into your Biznik profile. Your work is stunning.

  • Social Media Illuminated 
Los Angeles, California 
Laura Roeder
    Posted by Laura Roeder, Los Angeles, California | Jun 03, 2008

    Really interesting post, and Allan gives a great example - if cable companies would just give their customers an ounce of decent service everyone would be much better off!

Closed_info