Posted on 3rd July, 2018

Blog: Love the ones you are with

All businesses I talk to agree on the wisdom of many long-established truisms, only to seemingly ignore them every day. One is that it is ‘better to spend time and effort keeping a customer than acquiring a new one’. And yet there is limited evidence that this is how organisations are behaving in practice. Now that complaints are the key loyalty touch point, if we really do want to keep our customers, then 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 resolution of issues, it is easier to spend more money on marketing to acquire new customers. Rather than creating long-term fixes, short-term numbers count. As discussed in my previous blog “The only customer touch point that counts”, sustainable and profitable businesses need to consider how to put the customer first in resolution.

Are we able to 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, as explained below. This is a return on investment that those tasked with acquiring new customers could never dream of. The important part is to resolve the issue quickly, as otherwise, the potential value will rapidly become a liability. When a customer’s issue escalates to being 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, in general, any gesture of goodwill should be no greater than the cost of case handling.

The value returned will vary by industry so, 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.

The logic of acquiring new customers is that for a measurable amount we can gain additional revenues to replace the ‘inevitable’ customer churn. For the purposes of this blog, we have assumed the cost of acquisition to be £150. While the cost of acquisition varies per industry, on average it takes between 9 and 15 months to cover acquisition costs of a new customer out of the margin they generate.

This is a very naive measure of the cost of replacing the lost revenue of a leaving customer. Long-standing customers generate higher and more profitable revenues and are more loyal; they forgive minor indiscretions and are more willing to buy new things from us. They also cost less to service and have a much higher propensity to be advocates for us. You will not secure these customer behaviours for the £150 acquisition cost.

So if we stop a customer from leaving both of these costs are giving a future value of £750. If the case is handled well, there is strong evidence that the customer is taken from a consumer to a brand advocate and that they will recommend our brand to their friends. This is essentially high-quality 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 £30 delivering an average return on investment of £900 /£30 = £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!

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