PR 101

Did you ever notice how hard businesses work to attract new business? Yet, once they make the sale, they act like a two-year-old. They lose interest and move on to what looks like another shiny opportunity. They only notice the old sale when some other company tries to take the customer away. The two-year-old mentally kicks again. They suddenly want to keep what they ignored because someone else wants it.

The problem with being reactive is that it’s usually too late. A customer ignored is usually a customer lost.

That has always struck me as a strange way to do business. Yet, I see it all the time.

I am reading a book called “Flip The Funnel. How to Use Existing Customers to Gain New Ones” by Joseph Jaffe, president and chief interrupter (a title I love, by the way) of the Long Island-based consulting firm crayon. It lays out the reasons why more efforts should be focused on keeping existing customers.

As Jaffe says in the book: “why – if our customers are the lifeblood of our business – are we not relatively investing in them according?”

Jaffe cited a number of examples of why marketing to existing companies is extremely important, but I will give one. In 2008, customers who made more than three purchases from online shoe retailer Zappos accounted for 50.2 percent of the company’s business. In comparison, those people who only ever made one purchase accounted for 28.6 percent of sales. The remaining 21.2 percent of sales came from those who made two or three purchases.

So, a little more than half of the company’s business came from loyal, committed customers. Now, Zappos works hard to serve to that group of people. As they should – these people are the company’s most reliable revenue stream.

According to the website 1000ventures.com:

• Acquiring new customers can cost five times more than satisfying and retaining current customers.
• A two percent increase in customer retention has the same effect on profits as cutting costs by 10 percent.
• The average company loses 10 percent of its customers each year
• A five percent reduction in customer defection rate can increase profits by 25-125 percent, depending on the industry.
• The customer profitability rate tends to increase over the life of a retained customer.

Yet, despite all of those facts, most companies work harder to attract new customers than they do to keep the ones they have. I have to say marketing agencies are part of the problem. When was the last time you read about an agency touting its ability to hang onto existing customers?

Yes, it is important to attract new business. But, I would argue that it is more important to hold onto the business your company already has. As Jaffe points out, churning business is a bad thing.

That churn forces companies to focus too much energy on replacing lost business. It takes less energy and effort to hold onto an existing customer than it does to attract a new one. The energy used to attract new business could be better used coming up with new ways to satisfy existing customers. After all, happy customers don’t leave.

Which brings me to another point. It is an axiom in the agency business that a client will want to shift its a business when a new marketing manager takes over. I suspect the same axiom holds true in other businesses, although it might when a new buyer takes over or when management changes. The argument goes that the new executive at the client will like some other agency and will make a switch for that reason alone. I have seen a lot of companies that just give up when there’s a change in the client’s executive team changes.

It doesn’t have to be that way. The mindset needs to change.  Social media is an excellent way to maintain a brand and hence hold onto clients. In the coming weeks, I will be talking about some companies that do customer retention very well. I am always looking for examples. Let me know which companies you think do it well and how they do it.  If you have examples, I would like those too.