05 Aug The cost of focussing on customer acquisition
Our Managing Director, Rachel Bevans, analyses a recent experience to consider the cost of focusing on customer acquisition without a balanced approach to retention.
You’re a loyal customer of 10 years with a monthly subscription service, costing $102 a month. You go to login to your account and see exactly the same package being offered to new customers at $69 currently on special at $59. How does it make you feel and what do you do?
Existing customers may be lazy but we’re not stupid
As a customer, I am similar to most human beings when it comes to subscription, membership and ongoing services like bank accounts and loans. Fundamentally lazy. Switching is hard work. As long as it’s working, I’ll leave it as is. I’ll accept few problems along the way, as long as they’re fixed with minimum pain. Better the devil you know than the one you don’t.
I am also not particularly price sensitive as a consumer. I’ll pay for quality. I understand the cost of doing business and will pay for what I expect to receive. I understand that prices need to increase from time to time to cover increasing costs.
With this service provider, I was already questioning whether the $102 direct debit I see every month on my bank statement was worth the service I was receiving. Then I came across the offer for new customers.
When new customers get a significantly better offer
As a long-term customer, that price difference of 1/3rd less than what I was paying, made me feel unvalued. The price new customers were getting for the same packaging was closer to my perceived value for money for the service. It was enough for me to invest the time to call them, and in doing so, prepared to give the service up altogether.
This is what happened next:
I called the service provider and explained the situation. The consultant offered me $10 off, so instead of paying $102, I’d pay $92.
I asked them about the two packages and if they could explain what’s the difference to justify paying $33 (or $23 with the $10 off) more for the service. There is no difference.
I questioned why I should pay $33 more a month for the same service. The consultant could not answer the question and offered me their understanding and $10 off again.
I’m out of contract so I suggested I’d stop the service now and come back on in a few days at the $59 price or, since I wasn’t happy with the solutions being offered on the phone, I might stop the service now and go to another provider that would charge me $59 or possibly less. I was offered $10 off again.
At this point, I asked to speak to a supervisor. The consultant asked me to hold and came back saying they would move me to the new package, as they realised I was on an old pricing package at the cost of $69 per month.
This conversation took about half an hour of which somewhere between 25 and 30 minutes was unnecessary, and whilst I obtained what I sought, I felt unvalued.
Are new customers more important than current customers?
As a commercial marketer, I understand the loss of $33 per customer would hurt the bottom line. I’m also across the latest research from Ehrenberg-Bass Institute that affirms for brands to grow, they need to attract new customers; and much published findings that increasing investment into customer satisfaction (ie retention of existing customers) doesn’t grow revenue.
But when did new customers become more important than existing ones?
In a highly competitive and price sensitive market, where switching is easier, people are increasingly savvy and stop supporting brands that don’t do what’s right, what about the impact of the loss of that customer at $102 per month to the bottom line? And what about the subsequent losses in brand equity, brand value and even employee engagement.
As a customer, I don’t like the inequity in the thought that new customers are more important than me. I personally think I should be looked after better than them, rewarded for my loyalty. At the very least, a quick conversation shifting me across to the new packages would have made me feel heard and warmer towards the brand. More than that, proactive action to migrate me to the new package that didn’t require a call at all would have made me feel valued and warmer towards the brand. Even better, they could have thrown something small in for free, and turn my latent loyalty into increased brand warmth and advocacy.
This isn’t the first time I’ve had this conversation with a service provider. There seems to be a big focus on acquiring new customers with shiny new packages and discounted price points (which ultimately serves only to devalue the market so as a strategy should be trodden carefully), and not on migrating and looking after existing customers.
Is it a prioritisation of finite resources (people and budget) towards acquisition?
Is there an aspect of Ehrenberg-Bass Institute and others’ research that has been taken out of context and out of balance?
Or is it merely a commercial decision that relies on humans being fundamentally lazy and unlikely to make the effort to switch, for the benefit of shareholders versus customers?
Balancing people and profit
I don’t doubt for a minute this scenario causes an internal battle between marketing hearts and financial heads. For commercial, customer-centric and responsible marketers the internal battle is likely as much your own as the one you need to have up the ladder.
Take a balanced view:
- Do the numbers. Cost the people and budget resource required to migrate existing customers. Reduce the people and budget resource for new customers accordingly.
- Put yourself in your existing customers’ shoes, your prospective customers’ shoes when they realise this is the way you treat customers once in your fold, your current and prospective employees’ shoes, especially those who are taking calls such as mine.
- Review the impact across a breadth of performance measures – revenue, customer satisfaction, brand equity, brand value, employee engagement – specific to this scenario for existing customers and new customers.
High level assessment of this scenario
In this scenario – where the difference in perceived value and between existing versus new customers is so great – you’re more likely to lose customers, develop negative brand sentiment and word of mouth and lose the total revenue.
This provider may have held me off this time, but I’m now aware of the problem and if a better alternative pops up or they do it again, I don’t think I’ll be so inclined next time. I don’t feel warm towards them at all. I feel kind of cheated.
The alternate route of looking after your current customers, pro-actively migrating them to the new pricing package, will retain customers, create brand warmth and positive word of mouth, albeit at the lower revenue amount.