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Who's Afraid of Customer Acquisition?
A little customer acquisition never hurt anybody. Yet, you would think from the recent plethora of warnings (this blog included) about the importance of customer retention and the prohibitive costs of buying customers that acquisition is toxic. It's not.
A recent conference I attended at the Yale School of Management illustrated this point to me very clearly. Yes, the Yalie professors said, customer acquisition is more expensive than retention. And yes, retention is important. But there's no need to run and hide from the good old American business practice of going after your competitor's customers. No need to be afraid of spending some money on reaching out to potential rather than current customers. Acquisition costs have been driven down by Internet advertising and more efficient marketing optimization. The old school belief that its costs 10 time more to acquire a customer may not be true anymore. I'd like to hear from some people who have a cleaner metric on the difference between retention and acquisition programs. What do you think?
I don't know about the exact metrics, but the question of whether it is more expensive to acquire than retain is an easy one. I know it can take up to 20 hours of pitch, sales, bidding, convincing, and negotiating to win a new customer in my forum of online freelance work and consulting. In comparison, I can ping a past customer with one email and 3 out of 4 times create a new project just by asking if they need anything new. The benefit of customer retention is clear: it is far less expensive to my operating costs in marketing, time and advertising than landing a new customer, metrics or not. But it's always good to test old assumptions anyways. Otherwise we get complacent in our views of customers as businesses. I will definitely crosslink your post to our blog on the same general subject matter, Retention of Customers.
This is just a TEST to see how your blog works...
The analysis I have done on my teams and branches is that it is 3 times as expensive excluding advertising costs to secure a new customer, so, yes aquisition is more expensive.
However, it is necessary to grow your business and offset attrition as well.
It comes down to finding an appropriate balance of investing in both activities.
The game is always more difficult for the larger companies, particularly if they are publicly traded. The pressure to deliver short term results can impede smart long-term decisions from being made.
Folks, if the company you own, or work for, isn't aggressive about new business acquistion, I question whether you're really in business in the first place. Think: hobby.
Ron asks the most important question in the equation. “Where do you draw the line between customer acquisitions and customer retention; what’s in and what’s out?
To place one over the other; to fragment our view of customers into cells on a spreadsheet easily leads to myopic paradigms that overshadow the larger picture. If you’re not involved in customer acquisition your organisation is dying through attrition. If you’re not focused on customer retention then you’re supporting and encouraging the success of your competitor’s acquisition program. Acquisition and retention are part of one life-time transaction. That idea is not new but somebody close at hand made it famous.
Case in point: One arm of a local bank was actively involved in re-acquiring a lost account through lower interest rates, giveaways, draws; contest etc, all the while the other arm of the same bank was relentless in their pursuit of a $150 overdraft, through credit collections, for the same ex-customer. Neither arm seemed to be aware of what the other was doing, nor did they care.
After two years the bank finally produced the record of transactions that cleared the matter up; no apology was heard. This was not a company or front line staff; it was senior managers and eventually the ombudsmen that were involved. Guess which bank has been slammed 10,000 times in the last 5 years for split personality disorder and conduct unbecoming.
My point?
Maybe the cost of customer attrition far outweighs the cost of acquisition and retention? That’s not a new idea either!
Or perhaps my point is that any large organisation that finds a way to evaluate all three of these analytics as one calculation, in one spreadsheet cell, in one thought, before they face a customer, could reduce the overall cost of acquisition, retention, and attrition, significantly!
The bigger you get, the more you fragment, and the harder it is for you (big organisations) to remember that my lifetime value will be spent where it’s appreciated (yes I’m a boomer). I don’t need a spread sheet or a CRM module to figure that out, and I can make that decision a lot faster than big banks can track an overdraft.
Creating loyalty to a company that supersedes loyalty to one specific employee is inherent in the way management thinks and behaves. Its starts at the top and trickles down to the front line! If you want to impact your relationship with customers, regardless of who is on the front line, start at the top.
Qualifier: Over that last year I have conducted 40 taped interviews with management on the subject of leadership. One thread of discussion that keeps popping up is how people at the top shape the way people at the bottom, behave. Perhaps an effective CRM analytics model should include an assessment of management attitudes, behaviours and policies, and how your average Jane/Joe responds to that. I think it was Sears that was experimenting with a method of paying management bonuses based on future sales derived from current employee attitudes.
John -- The Yalies either lied to you or they didn't know what they were talking about. "Acquisition is more expensive than retention" is a myth.
The costs of acquisition and retention:
1) Vary by industry, by product, and company strategy. I’d bet that HSBC and Emigrant Savings have effectively acquired savings account customers online with above-average industry rates. Retaining — and, as importantly, cross-selling — those customers could not have been as easy (i.e., cheap).
2) Ebb and flow with economic cycles. Lenders found it a whole lot cheaper to acquire new mortgage and home equity loan applicants a few years ago than they do today. And why would anybody assume that retaining those borrowers from a few years ago was a piece of cake that didn’t require much investment? Hogwash.
3) Are incalculable. Let me put it this way: No one has any idea how much it really costs to retain customers. Do you include all the costs associated with providing customer service to customers in your retention calculations? After all, if you don’t service them, you will have less chance of retaining them. Do you allocate all IT application maintenance and enhancements to your retention calculations? If you don’t continually improve your transaction and interaction service capabilities, your ability to retain customers diminishes, you know.
It's time to put this myth to rest.