Posted on 31st January, 2017

Opinion: Love the ones you are with

James Walker on, is it is better to keep a customer than to acquire a new one?

Businesses seem to have urban myths just as in normal life. One is it is better to keep a customer than to acquire a new one, yet, there never seems to be any hard and fast evidence to prove the value of keeping customers yet the logic makes sense. Now that complaints are the key loyalty touch point then if we want to keep consumers it is time to take complaints seriously.

Businesses are suffering from the “Red Queen Effect”, running as fast as they can to stay where they are. Rather than improving satisfaction with the resolution of issues, it is easier to spend more money on marketing to acquire customers. Rather than creating long-term fixes, short term numbers count. Sustainable businesses need to consider how to put the customer first in resolution, as discussed in my previous blog.

Can we prove there is a value for caring about resolution? The simple answer is yes because £1 spent on resolving a customer complaint will deliver £30 of future value. A return on investment that acquiring a new customer can never achieve. The important part is to resolve the issue quickly as otherwise, the potential value will rapidly become a liability. When a consumer’s issues become about the way they have been treated and not about their issue, the consumer loyalty has been lost.

However, where the issue is resolved in 1 to 2 touches with an approach that is focused on the consumer satisfaction than not only will a business achieve brand loyalty but also create brand advocates. 1 to 2 touch points should cost no more than £20 to £30 in terms of handling costs. With over 70% of consumers only looking for the issue to be put right and potentially an apology any gesture of goodwill should be no greater than the cost of case handling.

The value returned will vary by industry, however, for the purposes of this blog, we have assumed reasonable market averages. If a consumer is retained there is a future value of the customer which we assume to be £600. It is also worth noting that a customer that has been with an organisation for more than a year management overhead significantly reduces. They are less likely to have issues, to churn or to need support.

As well as their future value there is no need to acquire a new customer. We have assumed the cost of acquisition to be £150. Whilst the cost of acquisition varies per industry it also often takes between 9 and 15 months to cover acquisition costs of a new customer from the customer’s margin.

Both of these costs are then removed there is a future value of £750. If the case is handled well and the consumer is taken from simply a customer to a brand advocate they will recommend a brand to their friends. This is essentially free marketing and we place a value on this the same as the cost of acquiring a new customer, £150.

Now the value of resolution is £900 and the cost of resolution is between £20 and £50 delivering an average return on investment of £30 for every £1 spent on resolution. Marketing budgets are a quick and easy solution but will never deliver sustainable long-term growth, brands most love the ones they are with!