Tuesday 4 January 2011

Why acquisition beats retention

In a short conversation with Graham Hill today, the topic of acquisition versus retention was brought up. My response to Graham's initial question was "human nature":
@GrahamHill: If only banks, utilities, telcos put as much effort into retaining customers as they did into acquiring them < human nature
and my second one was elaborating on that:
@GrahamHill Retention never gets as much attention as acquisition. Leads, customers, employees, or even cars, mistresses, jobs ;-)

When Graham asked next:
@MartijnLinssen The economic advantages of a whole lifecycle view of customer management are beyond doubt. Where is the problem?
I knew I had another blog post to write

Everyone reading this must be familiar with it: getting something new is commonly viewed upon as much sexier than restoring or prolonging something old. That goes for pretty much everything.
  • Ditched the old car, bought a new one? You devil you!
  • Stopped fixing your old house, got a new one instead? Success!
  • Finally dumped your old employer who stopped giving you pay raises 5 years ago? Well done! Joined a sexy start-up? Wow, even better!
  • Getting a new, younger wife, swapping that for the old hag? Applause!
You know me, of course, just mildly exaggerating there - while not far off target

Retaining existing customers versus acquiring new ones, retaining old employees versus acquiring fresh young ones, businesses also "suffer" from this apparent mental model - why?
  1. First of all, because new is perceived better than old. Somehow that's in our system, evolutionary. Is it what drives our survival, our basic instincts? The young are always welcomed everywhere across the world, in every culture. Jesus with his frequent quotations of children, dictators like Hitler and Stalin posing with children - the young, small and fresh move us beyond imagination
  2. Second of all, because it's easier to measure. Retention is fixing invisible problems: painting your house isn't giving it a visually better look, unless you waited too long to do so - and that means more work (sanding, puttying) meaning more time and money and energy. So, acquisition is always better visible than retention, and when it (nearly) isn't, that only means that the cost-efficiency of retention over acquisition has dropped dead
I call this last one The Law of Invisible Problems - if you need to raise awareness or funding for issues, it helps if others recognise them as such. After all, problems only exist once recognised. You can even make problems appear out of thin air by getting recognition for them (by all means pointing to Global Warming there, with a maximum of 4% of human-caused CO2 emission as part of all emission)

I've witnessed in large enterprises how this Law of Invisible Problems works: employees telling management about issues arisen, trends they saw in future issues, even showing them in nice and shiny graphs and Powerpoints, meeting the limited RGB-view of top management. I knew management understood them and the issues, witnessed the whole process from nearby, many, many times, but the truth was that there is no funding for invisible problems

Disgruntled employees, dissatisfied customers - they're there, but when do they turn into problems, meaning lost employees, lost customers? And do we get blamed if that's the case? If not, what's there to fear? If nothing to fear, what is it that drives us?

Fact of the matter is, that getting away with lost employees and customers is rather easy - it doesn't really lead to Punishment in most cases. Brand a lost employee as "desired exit", brand a lost customer as "trouble-making margin-squeezer" and all of a sudden they turn into socalled "non-regretted losses", aka collateral damage

Acquiring something new is visible to all, it tackles a known issue, you can get a budget for it, it's something you can tell the press and be proud of
Prolonging or fixing something old is visible to only a few, it tackles a largely unknown issue, hard to get that budgeted, and when telling the press, the first thing they say: So you have a problem with dissatisfied [fill in the blanks]?

If you want to retain, you need absolute openness and 100% transparency between all parties involved. Try making that happen in ye olde enterprise

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