Strategy

Why customer retention is the new acquisition

There’s nothing like the high of winning a new customer. Marketers live for it, and the vast majority of marketing dollars are spent on it every year.

Is it conceivable, then, that our addiction to customer acquisition might actually be holding us back?

Customer acquisition without retention is like fishing with a wide net full of holes.

Joseph Jaffe, Flip the Funnel

That’s what marketing consultant Joseph Jaffe asserts in his new book Flip the Funnel: How to Use Existing Customers to Gain New Ones.

“We continue to focus our efforts on landing the big one but ignore, forget or neglect what happens after the sale,” Jaffe says. “Or we don’t allocate enough resources – RELATIVELY SPEAKING – to sustain the catch of the day and turn it into the catch of the year, decade or lifetime.”

It costs between 5 and 10 times the amount to acquire a new customer than it does to retain an existing one. And since – generally speaking – 20 percent of our customers are responsible for 80 percent of our revenue, most of us are focusing our resources and attention at the wrong end of the 80-20 rule, according to Jaffe.

“Shouldn’t we be spending more money against qualified prospective buyers versus shots in the dark at bagging a random stranger?” he asks. “What would your world look like if instead of ending the purchasing funnel with a conversion, you began it there?”

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You don’t have to be an expert in CRM, affiliate marketing, one-to-one, retention or email marketing, either, Jaffe says. “Treating customers well, remembering their names, respecting their loyalty, rewarding and recognizing their repeat business, and finally, harnessing their untapped potential as advocates, salespeople and affiliates are ALL COMMON SENSE.”

So why do only a handful of companies get it right?

Exhibit A: Zappos

Jaffe holds up legendary shoe e-tailer Zappos as the quintessential flipped funnel company. Zappos is famous for making the previously challenging process of online shoe buying not only painless and risk-free, but a pleasure.

Where most companies are nearly impossible to contact, Zappos provides a 24/7 toll-free number on every page. Customer service representatives are onshore, untimed and fully empowered to solve customer problems. Where most companies make it difficult to return items, Zappos offers free return shipping and an unheard-of 365-day return policy.

Imagine this: Zappos became a $1+ billion company in just a few years simply by doing what their customers needed and their competitors didn’t dare to.

The Zappos experiment in radical customer-centrism translates into tangible business results, as well:

  • On any given day, about 75% of Zappos’s sales come from repeat customers.
  • Customers who made more than three lifetime purchases accounted for 50.2% of the company’s sales.
  • In 2007, first-time customers had an average order size of $123, and repeat customers had an average order size of $156.

What you can do to flip the funnel

First, get a handle on your numbers.
Jaffe provides us with this handy worksheet:

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Identify and reward your best customers.
The Internet makes it easy to identify your best customers and single them out for special attention. Yet many firms don’t.

Make it personal.
You know your customers’ names, purchasing history, and probably more. Use this information to keep your communications relevant and valuable.

Develop a comprehensive listening and outreach strategy.
Get a real-time handle on customer conversations taking place with your customer service reps, on product review sites, in the blogosphere, communities and other social networking sites. If you understand customers more clearly, you can better connect with and service them with timely, relevant, useful and helpful information.

Rethink customer service.
While most companies see customer service as a cost center to be minimized, successful companies like Zappos, USAA and Apple use it as a strategic multiplier.

Rethink the role of technology.
Find an optimal mix of technology and people. Technology should bring out the humanity in your company, not mask it. Have you ever received an automated customer service email that left you more frustrated rather than less?

Your opportunity

If an authentic commitment to customer relationships and retention was as elementary as it sounds, then more companies would be doing it. But few are. Will you continue to battle your competitors on the saturated and costly fields of advertising and promotion? Or will you array your forces instead on the wide open, more bankable plains of customer experience?