Deadly Marketing Mistakes

Two-Step Solutions To Avoid Losses

“Insanity means doing the same thing over and over again and expecting different results” — Albert Einstein

PROBLEM/SOLUTION GIVEAWAY

During the last 50 years, an average life span of S&P 500 company shrank from 50 to 15 years. No matter what industry, one of the deadliest mistakes companies make are linked to overspending on customer acquisition, while at the same time, dismissing devastating costs of Churn Rate.

Do so at your own peril. Before long, you will see your “Kodak Moment” in clear view, and your race to the bottom will hit the ground. And shortly after heating the ground….you’ll start digging!

PROBLEM

Telcos, SaaS companies, and hundreds of additional service-based enterprises, such as gyms, online retailers, etc. — operate on extremely thin profit-margins per customer. To stay in business — acquiring new customers is an absolute necessity.

Equally important, however, is your ability to keep the existing customers, too. And when they leave, you must gain a solid understanding of why they end their relationship with a company. In other words: you must understand the so called: “churn rate”

Sweettoothrewards illustrated churn rate as below:

Detailed analytics allow you to understand how good is your marketing campaign. After all, the numbers are there, and you know exactly how many new customers signed-up. It’s much more difficult to understand why customers leave, what’s behind such decisions, and what other negative implications may follow.

What’s More Important: Customer Gains Or Losses?

According to Bain & Company acquiring a new customer is 5 to 25 times more expensive than retaining an existing one. In financial services, for example, a 5% increase in customer retention produces more than a 25% increase in profit. No matter what is your source of marketing data, the statistics say it all. For example, invespcro & smallbiztrends are abundantly clear:

· The probability of selling to an existing customer is 60–70 percent

· The probability of selling to a new prospect is 5–20 percent

· 80 percent of your future profits will come from just 20 percent of your existing customers

· 65 percent of a company’s business comes from existing customers

· 32 percent of executives say retaining existing customers is a priority

· A typical American business will lose 15 percent of its customers each year

· 27 percent of small business owners estimate that 11–20 percent of first time customers don’t return to their business

Telcos — Swimming With Sharks In A Red Ocean

According to Database Marketing Institute phone, cable TV, satellite TV, and wireless companies — measure voluntary churn by a monthly figure, such as 1.9 percent or 2.1 percent. If annual churn rates for telecommunications companies average between 10 to 20 percent — this is a serious problem.

There aren’t too many industries outside of telcos experiencing stronger competitive pressures attributed to Red Ocean marketing strategies — see below:

So if 75 percent of the 17 to 20 million subscribers are signing up with a new wireless carrier every year and they are coming from another wireless provider — what is the actual cost implication of such frequent switching? In most cases, it goes above and beyond the resources spent to acquire the customer — in the first place.

My assumptions and simple example below:

1. 15,000,000 switching subscribers per year

2. $100/month average wireless bill per customer = $1200/year

3. Additional bundled services such as Internet & TV of $100/month = $1200/year

Total Churn Cost Per Annum = $15,000,000 * ($1200 + $1200) = $36Billion

No doubt, $36B is a big number, so why so many companies are not paying enough attention and doing much more to prevent switching?

Customer Retention

In spite the fact that Churn Rate is well understood:

· 44% of companies have a greater focus on customer acquisition vs 18% that focus on retention

· Only 40% of companies and 30% of agencies have an equal focus on acquisition and retention

· 89% of companies see customer experience as a key factor in driving customer loyalty and retention

· Existing customers are 50% more likely to try new products, and spend 31% more than new customers

· Companies lose 71 percent of consumers due to poor customer service.

· 68 percent of customers leave because they perceive company is indifferent to them

· 47 percent of customers would take their business to a competitor within a day of experiencing poor customer service

· 66 percent of consumers who switched brands did so because of poor service

SOLUTION

In general, Switching Costs are popular measures to reduce churn rate. Negative Costs such as Cancellation Fees and Contractual Obligations may discourage switching, while ad hoc Loyalty Programs offer rewards to encourage customers sticking with their current service provider.

Poorly handled Switching Costs often backfire. IMHO, even the best Customer Retention Strategy will fail — if it’s not properly executed. In similarity to retaining customer’s satisfaction using smartphones — both: h/w and s/w need to offer tangible benefits — constantly. Slacking in either direction — guarantees smartphone replacement.

To reduce Churn Rate and increase Retention Rate, telcos need to offer: Persistent Fairness and Recurring Recognition.

Persistent Fairness

If had a dollar each time I see a new offering for a 2-year wireless telco contract — labeled as: “For New Customers Only.” The rate is usually EXTREMELY attractive and meant to induce switching. And yet, a simple modification to such incentive could easily appeal to existing customers, too. Extending the same invitation to existing customers under a similar 2-year contractual commitment — does the trick!

Offending existing customers does little to earn their loyalty. You can’t retain loyal customers by waving deal sweeteners in their face — aimed exclusively at someone else. We all welcome gains — but we hate twice as much losses. It’s time marketing departments understand such psychology and take note — this is what Prospect Theory is all about!

Recurring Recognition

Recognizing long-term loyalty has no expiry date. It should be constantly reinforced and never taken for granted. Demonstrating customer appreciation can be done through both: monetary and non-monetary rewards: point-system, trier-system, exclusive offers, VIP treatments, etc.

Customer loyalty is strongly linked to company’s brand. And since the best brands are focusing on articulating End Value, so should loyalty programs — matter where it counts…

THE BOTTOM LINE

Combining Fairness with Recognition offers practical and pragmatic approach to reducing Churn Rate and Defections. It’s a basic Common Sense and not a Rocket Science. If in doubt, ask yourself how it would affect you — if you were in your customer’s shoes, reading about an offering aimed at new customers only? Perhaps it’s also a good time to remind 20000-year-old Golden Rule to your marketing department?

Oleg Feldgajer is President & CEO of Canada Green ESCO Inc. Oleg is positioning the company to become a leader in financing AI enhanced green energy projects and ventures. CGE’s mission is to guide DISRUPTIVE businesses in ENERGY & TRANSPORTATION toward profitable business models. Oleg is passionate about such mission, and firmly believes that without AI based innovation, we will all prematurely choke on polluted air and dirty water. CGE delivers 100% financing (levered and unlevered) to its clients — and utilizes large equity pools, and non-recourse debt. Oleg offers creative, fresh ideas to open-minded businesses — that embrace both: logic AND opportunistic intuition. CGE stands against mediocrity & its modus operandi is quite simple: If CGE is not invited to join your BOD, or Advisory Board — we failed!