Luring Back Former Customers: Triumph of Hope Over Intelligence?

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It is axiomatic in marketing and customer management circles that it is much more difficult and expensive to acquire a new customer than it is to retain an existing customer. Estimates range from five to fifteen times as expensive, depending on the industry and situation. This is a reason why companies ought to pay more attention to nurturing current relationships and ensuring that customers feel valued, whether by providing a great experience or by other means. Incidentally, happy customers can also be a great source of referrals and can help reduce the above mentioned high acquisition cost.

Not much is written about the relative difficulty and expense of regaining lost customers. I suppose that also depends on the circumstances, but in some situations it may be not even be possible, because the customer has outgrown that need – think baby diapers. Understanding your customer may help you realize that and help you avoid spending money on futile efforts.

Allow me to illustrate these points with some personal anecdotes from the recent past. I recently sold the company I founded almost 10 years ago. We were a medium size business with close to 100 employees. We had a health insurance plan for all of that time. The company also held a large value key man life insurance policy to protect our shareholders and employees in case something was to happen to me. Shortly after the company was sold, we terminated both these policies as they were no longer needed. The health insurance company, that had never bothered to communicate with me once during the many years we gave them business, was suddenly badgering me with customer satisfaction surveys, etc. to see what my experience had been like. They were obviously trying to get at the reason for the termination under the guise of wanting to know my opinion of their service. If they had any customer intelligence at all, they would have known that the policy was cancelled because our business circumstances had changed and had nothing to do with our satisfaction or otherwise with their services. I ignored their requests, since there was no value to me in responding to them. I would have gladly participated in any such survey while we were still a customer, but they never asked.

The life insurance company, which had also ignored me (nary a thank you over the years, mind you) for many years suddenly started calling me to tell me how concerned they were that my life was no longer insured. Again they had no idea why the policy had been cancelled, even though I had explained the circumstances to their rep when I called to cancel the policy. After repeated calls from the agent (my original agent had long since moved on), I finally spoke with him. I asked him if he had any idea of my history with the company, that I had a high value policy for many years and had recently turned it in because I did not need that policy any more. He was clueless. He had just been given my name as a lapsed customer with no context as to my previous relationship. Needless to say, I did not pursue the conversation. Neither of these companies would be on my short list of companies to do business with in the future, if the need arises. Nor would I recommend them to my peers. I might even discourage my colleagues from doing business with them.

What truly surprises me is that both of these companies are industry leaders with very good reputations. One of them, the health insurance company, has spent a fortune on CRM. Why? So they could poll lapsed customers in a futile bid to win them back?

My last example has to do with what happened when the news of the sale of the company was announced. Within minutes (no, that is not a typo or an exaggeration) of the announcement multiple private bankers from all over the country started calling me and bombarding me with letters offering to manage my money. Not a single person called me from the local market where I live. I found both the calls from far places and the absence of local calls very interesting. I did not respond to a single one of these calls. The only advisers I talked to were those recommended by people I trust. The formal marketing outreach had zero impact. Word of mouth was the only thing that worked, in this particular circumstance. I do have to wonder how well cold calling works in these high involvement situations that are selling what is essentially a commodity service, but are very relationship based.

What lessons do I draw as a professional marketer from all this? Some marketing acquisition and win back efforts are futile. IF you knew your customers, you would not waste your money chasing these opportunities. So invest in knowing your customers and understanding why they do business with you. Put that intelligence to use – treat those customers well – appropriately informed by that understanding. At a minimum, take the time to thank them for their business. Build your relationship while you still can. That courtesy may one of the best investments you can make. You never know who they might be talking to. It might be a prospect you cannot reach on your own.

Naras Eechambadi, Ph.D
Dr. Naras Eechambadi is the founder and CEO of Quaero, a world-class data management and analytics platform empowering enterprises to integrate, discover and democratize their customer data. He is a life-long technologist and entrepreneur with over three decades in the software products and services industry. He has been awarded numerous distinctions as both a marketing executive and entrepreneur. Naras is also the author of a critically acclaimed book, High Performance Marketing: Bringing Method to the Madness of Marketing.

6 COMMENTS

  1. Great examples, Naras. Thanks for sharing.

    It is amazing that with all the systems in place, that not even an automated “thanks for your business” letter or email is sent. Relationships are taken for granted… until something happens, and by then it’s usually too late.

    Our cable company recently contacted us (by mail) saying we needed a new converter box. After calling them, they concluded we were paying 95 cents per month too little. Note: This is the price we’ve been paying for years, per their invoices.

    Now, if you knew my wife Regina, who was on the phone for 45 minutes (and is the CFO of CustomerThink Corp., btw) you’d know that the error was on their end. But the agents wouldn’t give in. Regina got frustrated, told them we had been thinking about canceling our cable service (true), what with the bad economy and cutting expenses. After being put on hold, the agent came back and…cut the price by $10 per month.

    Apparently the agent was not empowered to give a concession worth $12 per year, but had no problem giving a retention discount worth $120 year.

    Sadly, I guess the message here is that if you want a good deal you need to be either a) a potential new customer or b) a potential old customer. Is it any wonder that consumers shop around and aren’t loyal? That’s exactly what we’re being motivated to do.

    Bob Thompson, CustomerThink Corp.
    Blog: Unconventional Wisdom

  2. Bob,

    I have often asked this question of our client and the answer is almost always a variant of the same basic theme. It comes down to incentives, which are not based on corporate customer metrics but on departmental goals. I bet you that once Regina threatened to discontinue service, she immediately was placed in a “win-back” type box and the rep was probably empowered to offer the extra discount because that money comes from the “retention” manager’s budget. The retention manager can now claim you as a customer that was “saved”, and that will help them make their numbers and collect a bonus.

    It is a shame that companies do not treat customers wholistically and the best deals are indeed only offered to new and lapsed customers. An example I came across of this behavior was with one of the two major satellite TV companies. I had discontinued their service temporarily and wanted to bring it back on again after about nine months. The rep actually told me to wait three months because the deal would be much better. She said the price would be less than half if I waited, because at nine months I was not counted as “truly lapsed” customer but at twelve months I would be!

    Naras V. Eechambadi, Ph.D.
    email: [email protected]

  3. Naras: I recognized my own myopia in your examples. We often expect customer attrition for a variety of reasons–competitive pressure, pricing, market forces–but we often don’t anticipate a customer utterly outgrowing our product. Case in point: I always expected my supply chain customers to have a . . . supply chain. I anticipated many problems, but simply outgrowing the need for my product altogether, as you describe with insurance and diapers, wasn’t one of my considerations. It should have been. Your discussion demonstrates the vendor confusion (and customer annoyance) that ensues when an outcome occurs that wasn’t in the “script.”

    Any marketer or product developer must recognize that outgrowing a solution represents key business risk that should be mitigated.

    A related blog I wrote on CustomerThink:
    Honor Thy Customer Before He Leaves, Not After

  4. Hi Naras

    Great blog post. Full of sizzle and steak.

    It neatly illustrates the concept of the customer lifecycle. The idea that customers come to you, grow and expand their business with you and then move on (literally or metaphorically speaking). The heart of CRM is about understanding the customer lifecycle and then managing it so that the number coming and growing outnumber the number moving on. And so that you can create the maximum of value from customers whilst they are with you.

    We get obsessed with narrow, static ideas like customer acquisition, cross-selling and customer retention, and functional disciplines like marketing, sales and service. In doing so, we forget that we have a dynamic porfolio of customers that need managing so that their value is maximised throughout their lifecycle until they, inevitably, move on.

    Johnson & Selnes
    Journal of Marketing, 2004
    Customer Portfolio Management: Toward a Dynamic Theory of Exchange Relationships
    http://tinyurl.com/cbmyr8

    Graham Hill
    Customer-driven Innovator
    Follow me on Twitter

    Interested in Customer Driven Innovation? Join the Customer Driven Innovation groups on LinkedIn or Facebook to learn more.

  5. Andrew,

    Thank you for your comment. Companies, including those of us in the business, do tend to get caught up in our objectives and forget the customer’s situaion sometimes.

    I did read your blog. It does amaze me how often that behavior happens. I think it is ingrained in some institutions.

    Naras V. Eechambadi, Ph.D.
    email: [email protected]

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