It used to be boring. But five recessionary years have confirmed ‘retention’ as marketing fashion’s ‘new black’. It’s all that stuff everybody vaguely knew but most didn’t practice: loyalty, lifetime value, relationships. And, take note, it’s no fad. Just long overdue.
In traditional marketing, acquisition – making the next sale – is king. Understandably. It emphasises the next win, the thrill of the chase. It adopts the language of the ‘hunter’ (as top business developers are called in consultancy): you target the punter and you ‘knock him over’. It offers glamour and rich reward. And, in a final and most egregious flourish, it is the essence of the disaster that has engulfed banking. If you combine PhD-complex products, human ‘hunter’ instinct and cultures incentivised only to hit the next sale or deal, then why is anyone surprised by Barclays et al?
Poor old retention, meanwhile, is hard, continuous work. Long-term and longer yawn. Such ‘farming’ simply doesn’t have the same sex appeal as hunting. It won’t justify a bottle of Bolly! As an early boss summarised: “so long as we win more than we’re losing, who cares?”
Answer: well almost every business. For example, stemming a typical annual 25-33% churn means survival in tough times and will pump the bottom line in good. Leveraging the recommendation value of loyal client-advocates often underpins 50% of new business in a professional services or considered purchase environment. Focusing on your ‘share of wallet’ (say of a customer’s eating out preferences) may not only yield growth but also innovation for the long-term.
How does it work? Well don’t panic. This isn’t an ad for an expensive CRM software implementation. True, that might help when it comes to downstream execution. But first focus on how you create the retention asset: customer goodwill.
Think of customers’ ‘goodwill’ as a series of bank accounts. Keep them nicely in the black and you can ride out problems and build opportunities. Run them on ‘empty’, or into the red, and the smallest incident may mean you lose the customer.
Research finds six major ways to credit your customers’ goodwill accounts. As you might anticipate, people expect to be satisfied with service and utility. And many are committed to brands and relationships.
But evidence suggests that the most valuable is satisfaction based on pleasure. Your product ticks all boxes (utilitarian satisfaction) but do customers enjoy their experiences? Your waiter’s timing is impeccable but does he ever make customers smile? Your project reviews are perfectly organised and beautifully presented but does anyone have fun? And, note, this pleasure (or hedonic) satisfaction unerpins a very potent customer behaviour i.e. public advocacy or willingness to endorse your product in an article or on stage.
Next comes fairness (much loved of course by Brits). Please note this isn’t about some philosophical absolute. It is, rather, about perceptions. If a customer believes that you deal fairly in all aspects from pricing to after-sales service, it creates an unstated ‘my word is my bond’ relationship. Fairness is especially a strong defensive currency. It creates resistance to switching (‘yes, ABC is cheaper but I trust XYZ’) and it supports exclusive preference (‘I know we could easily walk to Beta or Gamma Restaurant but I’m at home at Alphas’). Note to any new potential entrants to UK banking: build even the most basic reputation for fairness and just watch the customers pour out of the old discredited high street players…
And finally: well it may be the ‘new black’ but your opportunity is that most people really don’t know how to wear it well. Retention isn’t about ‘targetting’ with a loyalty card or knocking them over with a special loyal-customer bonus. That’s hunter language…. Effective retention is about engaging, working together, creating mutual opportunities… It’s simply the right thing to do. Isn’t it?
Excellent summary of key business principles.
It’s funny how sometimes we pay more attention to customer acquisition than retention, even though some researches had demonstrated that finding new customers is about seven times as expensive as selling more to the installed base.
Maybe do we unconsciously think that our customers are a given whilst they are our responsibility.
Thanks a lot Bill.
Very timely stuff Bill. Unfortunately the testosterone linked to “hunting” is still an elemental driver. Its more dramatic and as you say appears more glamorous. Farming, and the gap filling it can also represent, are very efficient ways to grow and win but just not as sexy. Perhaps the banking fiasco has opened our eyes to the neglected concept of “quiet victory”… perhaps.
Great article Bill. I think business resilience and sustainability will be the biggest challenge of the next decade and in order to achieve this, I agree the culture of most organisations will have to change. Leading by example will become increasingly important; this is arguably the most effective way to cascade a change in behaviour, and restore an ethos of teamwork, and even fun to the workplace. But this is not about intangible feel good factors: in my view engaged employees will be the most important brand differentiators.
Nice article.
However, in the real world it is much easier to say than to implement.
Many industries are highly price driven, therefore customer service and looking after each and single customer is forgotten.
At the end of the day, customer service is what really makes you stand out.
Nice one Bill.
As someone that likes to have a mixed economy of hunting and farming its important that you build a team that can play to its strengths. Selling extensions and getting great customer satisfaction reviews is equally important to new customers. We try to reward both behaviours equally – sometimes we get it right and sometimes we forget!
cheers
Keith
With consumers and organizations dealing with austerity it does make a lot of sense to focus more on farming than hunting because in tough times the impulse is to focus on hunting which is certainly more costly. A behavior that a lot of organizations forget is that excellent farming will lead to word-of-mouth recommendations which is much cheaper than hunting.