Wednesday, 3 June 2009

Because That's where The Money Is...

...so said Willie Sutton a prolific bank robber when asked why he robbed banks. The real money in marketing is in retaining the customers we work hard to acquire, studies have consistently shown that modest increases in customer retention produce significant bottom line impact via gains in marketing efficiency and effectiveness such as:
  1. The cost of acquisition occurs only at the outset of the relationship - the longer the relationship the more time to amortize the cost
  2. Account maintenance costs decline as a % of total costs
  3. Long term customers are less price sensitive and less inclined to switch
  4. Long term customers tend to purchase additional products/services
  5. Long term customers can grow the brand via word of mouth and social channels

Why then do marketers still over-index on acquisition over customer retention ( at least, as Lester Wunderman would say "acquire customers with the intention to loyalize them). A recent report from Bain & Company reaffirms that acquiring a new customer can cost 6 to 7 times more than retaining an existing customer, yet the lions share of marketer's budgets are allocated to pure acquisition plays, even in a period of economic downturn. For example, the Lloyd James Group in the U.K. surveyed 1000 finance directors and senior financial managers - more than 70 percent of the respondents favored a reduction in resources for CRM while boosting investment in prospecting for new customers. The truth is that it is often hard to measure the true cost of retention, so I am not sure that I buy the simple maths here, I do know that there needs to be a holistic view of, and balance between the two, intrinsically connected (yet often organisationally distinct) activities...

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