Many brands place far more emphasis on new customer acquisition than on customer retention.
Yet it costs five times more to attract a new customer than to retain an existing customer. According to Bain, a 5% increase in customer retention can increase a company’s profitability by 75%.
I’ve been thinking about this dynamic while dropping Comcast after a series of bad experiences. Comcast is the largest cable and Internet provider in the US. They are also consistently ranked at or near the bottom for customer support.
Their poor investment in customer service hasn’t prevented them from investing in expensive Comcast marketing collateral to send me, even as they fail to resolve their poor service and keep me as a customer.
Cable companies may be extreme examples, but I think that many brands are like Comcast. They treat customer retention is an afterthought and take existing customers for granted.
Sooner or later, brands that excel at customer retention will win in a social media world.
(Marketoonist Monday: I’m giving away a signed print of this week’s cartoon. Just share an insightful comment to this week’s post by 5:00 PST on Monday. Thanks!)
Here’s a related cartoon I drew on the “One Night Brand” phenomenon back in 2007.
20 CommentsJoin the Discussion
Mansi Goenka says
It’s a common phenomenon here in India atleast. Before buying a product the first thing I look online is for customer sob stories on after sales service. By far only one brand has stood true to its customer commitment – Dell. Everyone else needs a social media bashing or consistent calls. An instance is of Tata Indicom. We gave up our internet connections due to poor customer service and wrong billing and even now we get a call from their sales team to take up new connections. At times I wonder when will companies stop this silo functions or at least have a uniform content management system which shows your sales eam that this customer has had a bad experience so needs to be handled differently.
asit gupta says
The path to new consumers starts with satisfied current consumers. But most marketing $$$ is spent on the beginning of the funnel and not on converting loyalists to Advocates. That is what we at Advocacy have been doing for last 3 years. Has required massive education as it is just not sexy enough marketing. Awareness of Bain’s NPS score in FMCG is very low. It will be a long slog. SLowly but surely the tide is turning though. Just last wednesday at the WOMMA summit in Nashville we picked up 3 awards for our Advocate led campaigns. Hail the satisfied current user !!
Charlotte Vicary says
I run sessions which take customers into big businesses for live face to face sessions with staff. Favouring new customers over existing ones is a particularly strong theme amongst customers of energy companies, retail banks and pay TV. Interestingly, those consumers consistently hold up mobile phone companies in the UK as role models of companies who proactively look after their existing customers, for instance by calling them to offer better tariffs. When you hear customers talk about those brands, the advocacy comes shining through and you feel the difference it makes to brand-consumer relationships.
Bill Carlson says
One of my pet peeves as a customer is all the great deals offered to new customers by my existing cellular provider. I see this as offering preferred pricing to someone who has yet to spend a dime with them while I, on the other hand, have been with the same service for many years and likely have spent — yikes, I did the math — probably $20-30,000!
For the fun of it I actually wrote a note to them once to complain about this and the response was what you’d expect — explaining marketing 101 when in fact what they should have done is say thank you for sticking with us for so many years, we’re picking up the tab on your next bill or better yet, “pick any new phone and we’ll pay for it.”
These kinds of businesses “live on the churn” — the turnover of customers from one to the other and back based on “deals.” They’re not really approaching their business as being based on relationships (to the contrary, eliminating discounts on equipment based on “early renewal”), and perhaps that’s just the way it is.
Which doesn’t diminish my irritation, of course… 🙂
Jami Thornton says
It always amazes me that companies, particularly cable, cell phone and internet providers, don’t offer their long time loyal customers the same deals and incentives that they offer to their new customers. And it’s not until you are calling to cancel their service do they make any real effort to keep your business. Rewarding your loyal customers seems like such a simple and less expensive solution to profitability, yet so many companies ignore their current customers in favor of acquiring new customers.
Go Asit! 🙂
I’m with Bill and Jami – it is painful to see the new deals only being offered to new customers and it does nothing to inspire consumer loyalty at all, just to inspire us to go from one service to another all the time.
DirectTV is our favorite cable provider, however, right now we are with Comcast. Why? Because after 5 years with DirectTV, they were not willing to work with us on pricing even though they are flinging everything at new customers. So we went with Comcast, because they were willing to cut us a good deal for a two year contract. 3 months into the contract with Comcast, DirectTV started mailing us price cuts, free equipment offers, offers to buy out our contract, etc.
Why DO these services force their most loyal advocates to switch services before they show them some appreciation? It’s such a destructive business model and has to cost them way more. It’s so baffling.
On the other hand, I think its good to continue to reward companies that do a great job of delighting their current customers. Amazon. Apple. Grubhub. Virgin. American Express. Bloomingdales. Nordstroms. Julep. BaubleBar. Starbucks. Sephora. Those are my favorites off the top of my head. Notice that none of them are cellular providers, television, Internet providers, car dealers, or any of these firms that prefer the “live on the churn” model.
Dan R says
This marketing approach is even more evident in the financial services industry. The big banks will offer you $50, $100, sometimes more than $200 to open a checking account. Once you do that, you find yourself in a situation where you trust your money with someone who spends more time figuring out how to take it from you, with fees, than they do trying to keep you happy and financially fit.
After that, they grab hold of billions of your tax dollars for bailouts — because the too big to fail banks, failed.
And we ask, how is all that possible?
It’s because we end up choosing the lesser of evils.
Comcast / Direct TV
AT&T / Verizon
B of A / Chase
The good news is that, for financial services, there are wonderful alternatives: credit unions.
Of course, and this is a disclaimer, this comes from a credit union marketing geek.
Sorry to hear about the troubles you experienced with Comcast. Can you provide more info? I work for Comcast so please, feel free to contact me if you need more help. I can be reached on the email below. Please add your account info and a link to this page as a point of reference.
National Customer Operations
Wow, I’m pleasantly surprised to hear from Comcast on this post. I’ve spent time with a lot of customer support reps who weren’t able to make things right, but I’m going to email ComcastMark to see what happens. In any case, thanks for taking the time to add a comment! -Tom
Existing customer base is important but in order to get companies grow new customers are a must. It is usually very hard to sell more to existing customers. Also keeping existing customers is very expensive because people are brand switchers in nature.
I would really like to see a study that would justify the claim: “Yet it costs five times more to attract a new customer than to retain an existing customer”. This is a common phrase in marketing without any scientifical background or case studies.
Sean Peake says
Can you direct me to that study? Something seems a bit off with the numbers.
I found the stat in this Forbes article (http://www.forbes.com/sites/alexlawrence/2012/11/01/five-customer-retention-tips-for-entrepreneurs/). It looks like the writer was referencing this Harvard Business School article (http://hbswk.hbs.edu/archive/1590.html). It looks like the original article says that a 5% increase in customer retention can lead to an increase of 25%-95% in profitability. Not sure why Forbes picked 75% in that range. Hope that helps.
Sean Peake says
That study is from 13 years ago and was merely surfing the customer loyalty wave theory started in the late ’90s. The 80-20 rule has been falsified—it’s actually around 50-20. Loyal customers are nice and all, but they are usually expensive to retain; besides, chances are they’ll buy your product anyway or are buying all they can use. Plus customers aren’t as loyal as we like to assume. The biggest opportunity for sales growth comes from light customers, those almost never buy it or do so two or three times a year—the segment that represents ~50% of a brand’s sales. It should be about market penetration not market share, especially for mature brands. Here’s my take on all this: http://swimminginbs.blogspot.ca/2012/04/on-road-to-damascus-science-breaks-down.html
I read your blog and thoughts which Byron Sharp introduced. I agree with most of it. However there was not a reference study to justify 50/20 rule either. Funny how vague marketing theories are:)
By the way I do still believe in the power of positioning: how can you otherwise explain the rising market share of Apple computers or GoPro videocams. Clever marketing still has its place!
Sean Peake says
Mikko, the reference is: Sharp, B & Romaniuk,J 2007, “There is a Pareto Law but not as you know it,” Ehrenberg-Bass Inst. report #42. It was included in his book, How brands grow–a worthwhile read–that was the core reference in my piece. Martin Weigel, the brilliant planner at W+K Amsterdam, wrote about it, too: http://martinweigel.org/2010/12/07/sooner-or-later-though-you-always-have-to-wake-up-corporal-jake-sully-avatar-the-received-wisdom/
I also think the success of Apple/GoPro has more to do with brand distinctiveness and differentiation.
I fear your excitement on the Comcast response may have been overrated. I used the email and have had two responses that have either come from an automated system or have been sent from people who do not read emails correctly.
Thanks for the link! This is a topic that should receive more research given the huge monetary implications. As you see from the link below there are clearly two camps in this topic.
Customer retention often comes via customer satisfaction. It sounds like comcast had not clue you were unsatisfied with their service, and yet they were trying to sell you more. That sounds like they do not measure customer satisfaction or if they do, they do not link those results to their marketing activities.
Selling more to an existing customer is hard, selling more to an unsatisfied customer might take a miracle.
I’ve recently been following the marketing MOOC from a top business school and can report that they still major on customer acquisition – unfortunately not in the Byron Sharp way.
Gail Gardner says
I love your cartoons and this may be the best one yet. It is hilarious – and oh so true! When will businesses realize that their current customers are MORE IMPORTANT than new ones. The statistics overwhelmingly show they are easier to convert. So why do so many companies keep ignoring them to chase new ones. I have to assume they (wrongly) believe they have the existing ones locked in. Which reminds me of your cartoon with a zillion “loyalty” cards piled on the checkout.