Over the last decade, most companies have moved away from one-time product and service sales to subscription-based business models. In fact, analysts estimate that 70-80 percent of the average company’s revenue now comes from existing customers in the form of renewals and upsells. Customer success has become a premier growth engine with unique demands and pressures.
Yet, the majority of companies (58%) see no need to differentiate their messaging and content between new customer acquisition and customer retention or expansion. Instead of tailoring their messages and delivery, they rely on the same message for marketing, regardless of the customer relationship.
The problem is, this one-size-fits-all approach can backfire—and we have research to prove it. The messages and skills needed to win “Why Stay” renewal and “Why Evolve” expansion conversations are 180 degrees different than acquisition conversations. Using the wrong approach, at the wrong time, can cost your business dearly.
This is precisely why we wrote The Expansion Sale : the first book that details a powerful set of research-backed messaging frameworks and situational delivery skills, so B2B organizations can keep and grow their existing customer relationships.
The book highlights strategies for four must-win commercial conversations in every customer relationship:
- Renewals: Why should I renew with you? (Why Stay)
- Price Increases: Why should I pay more for your solution? (Why Pay More)
- Upsells: Why should I buy even more from you? (Why Evolve)
- Apologies: Why should I trust you after a service failure? (Why Forgive)
Read on for a sneak peek into The Expansion Sale and learn more about that first must-win commercial moment: customer renewal.
Why Stay and the Psychology Behind Renewals
The Why Stay Renewal Study
Together with Dr. Zakary Tormala, an expert in messaging and persuasion and a professor at the Stanford Graduate School of Business, we tested three types of messages to determine which would be most effective in a hypothetical renewal scenario.
At the outset of the study, participants were instructed to imagine that they ran a small business and that two years ago they had signed up with a 401k provider to help promote their company’s retirement plan to employees. Their objective was to boost employee satisfaction and retention by getting more people to sign up.
Participants were also told that two years ago only 20 percent of their employees subscribed to the 401k plan, against a goal of 80 percent. Now, two years later, participation had risen to 50 percent – higher than the previous 20 percent but still short of the 80 percent target. Meanwhile, employee retention rates had improved, but it was difficult to know how much of that was attributable to promoting the 401k plan.
The participants were divided across each of the three approaches, or study conditions. They only got to view and listen to one type of renewal pitch. The opening paragraph of each pitch was identical across the three conditions, but then each of the pitches varied in crucial ways:
- Pitch #1: Status Quo Reinforcement. Participants in this group received an encouraging description of how the plan was working to date and heard how the company was progressing toward its goals. They also read a message intended to reinforce the status quo, emphasizing how much effort went into selecting the current provider and highlighting the risks and costs associated with switching to a new one.
- Pitch #2: Provocative Why Change Pitch. This message documented the results to date but then switched gears, introducing a new idea that challenged the current approach. This message noted that it can be harder to make the jump from 50 percent to 80 percent, and that doing so may require different tactics, such as switching the 401k plan from an “opt-in” approach to an “opt-out” one. The provider would help make this change.
- Pitch #3: Provocative Pitch with Upsell. This message was the same as the provocative pitch above, except it also offered a selection of new online tools to help engage employees in reaching their goals. The new tools would add 5 percent to the overall program costs, with an anticipated payback in fewer than 12 months.
After hearing their respective message, participants answered a series of questions designed to assess their reactions to the message and its persuasive impact. The questions focused on participants’ intention to renew, attitudes toward the provider, likeliness to switch and credibility.
Reinforcing Status Quo Bias: What the Research Revealed
Across the measures assessed in the experiment, the status quo reinforcement message outperformed both the provocative and the provocative with upsell message by significant margins.
The message that documented success and reinforced the Status Quo Bias delivered the following results:
- 13 percent boost in intention to renew relative to the two provocative messages. To measure this, participants were asked how likely they would be to renew with their current provider and how likely it was that they’d stick with that provider.
- 9 percent boost in positive attitudes compared with the other two pitches. Participants had significantly more favorable impressions of the provider than in either of the message conditions that challenged the current approach with a new idea.
- 7 percent lift in credibility perceptions relative to the provocative conditions. Participants answered three questions assessing how credible, trustworthy, and confidence-inspiring the provider seemed to be.
What’s In a Winning Why Stay Message?
The message framework that had the most powerful impact on the renewal decision took participants through a systematic reinforcement of their natural Status Quo Bias.
Here’s the narrative, along with our analysis of why each element worked as a component of a renewal message:
1. Document results
Showing the results you’ve helped your customer achieve is a great way to put everyone in a good mood to kick off a renewal meeting. But there’s a practical reason for documenting results as well: credibility. The participants in our study reported greater trust in the provider when the provider’s message first documented results. Customers need to hear this assessment before they’ll be receptive to the rest of your message.
Hearing about progress to their goals also reinforces Preference Stability, even though they likely have not fully achieved those goals. In our study, the incumbent vendor had only delivered on about half the stated goal it had originally set with the customer, and yet that message framework still won. Our hope is, you’ll do better than 50 percent, but it’s still highly unlikely you’ll have delivered on everything. It’s the progress toward the goals that customers care about – provided you’re focused on the goals that are important to them. While it might be tempting, in the heat of preparation for a QBR or a renewal meeting, to highlight the goals that show the most progress, in reality, you should choose the ones your customers consider the most important.
2. Review the prior decision process
By reminding the customers of the process they went through to choose you, you reinforce Preference Stability in two ways. First, you reaffirm that they did their due diligence during the selection process. Did they issue an RFP? Did they invite executive sponsors to buying committee meetings? Did they do a pilot or a proof of concept? If so, they can rest assured they did a thorough evaluation. And second, by taking them back through every step of their decision, you’re gently reminding them of how agonizing that process was. Why in the world would they want to repeat it – especially if they’re going to end up with something that’s “just like” what they’re already doing with you?
3. Mention the risk of change
This step is meant to trigger Anticipated Regret and Blame, and it works in lockstep with the Incumbent Advantage, as well as with your customers’ natural loss aversion. Not only will switching to an unproven solution increase the risk that something could go terribly wrong; it could also erase the progress they’ve already made to the goals you just documented.
4. Highlight the cost of change
Even if none of the risks above ever materialize, or your customers aren’t worried about them, change still carries a cost. Your competitor might be trying to undercut you on price, but your customers’ Status Quo Bias is still telling them that doing nothing is the less expensive option – and who are you to argue with that? Nudge them along. Educate them about all the ancillary costs that are not in the competitor’s quote. Do they need to replace equipment, integrate systems, redesign business processes, train their staff? Will they need to notify customers and vendors? Will they have to run both systems concurrently during the switchover? All this takes time and resources, which can quickly eat away any difference in the quoted price. Your competitor certainly won’t mention any of this, so your customers won’t have the full picture unless you bring it up.
5. Detail competitive advances
Selection Difficulty says that if customers perceive all options as equal, they’ll stick with the status quo – in this case, you. You also saw earlier in this chapter that using a disruptive message can compel your customers to look at other options. So how do you show your customers you’re continuing to innovate?
The answer is, you introduce new capabilities in the context of the original problems the customers were trying to solve. You don’t want to put in the context of some new, previously Unconsidered Need. You want the new capabilities to appear as an extension and continuation of the customers moving toward their original goals. This is a tough rule to follow if you’re a marketer or seller expected to tout how “revolutionary” or “cutting edge” your new capabilities are. It’s not that it’s not okay to be proud of your new stuff. You can even say it’s better than the competitor’s. Just don’t describe it as a game-changing disruption no one’s ever thought of before. That’s practically begging your customers to go out and try to prove you wrong.
What do you do if you have something that actually is a game-changer, though? Then it’s a question of timing. If you have a committed contract with a customer, with plenty of time left, then it’s safe to introduce that new capability. But if you’re close to a renewal date, you might have missed your window. The best thing you can do at that point is to place the new feature in the context of the original problems the customer was trying to solve, secure the renewal, and then introduce the Unconsidered Needs that the new feature will address when you’re safely in the new contract term.
That might be counterintuitive. But by now you know the risk of being too disruptive with an existing customer.
Backed by years of research into what motivates existing customers to buy, The Expansion Sale reveals a tested and proven approach to messaging in four must-win conversations with existing customers:
- Why Stay – Why should I renew with you?
- Why Pay More – Why should I pay more for your solutions?
- Why Evolve – Why should I buy even more from you?
- Why Forgive – Why should I trust you after a service failure?
For more information on The Expansion Sale visit: expansionsale.com.