Saturday, August 12, 2017

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Why is going after new customers a big mistake? By Roy Osing

There are a number of strategies available to the marketer to grow revenue - raise prices in the face of inelastic demand, lower prices when demand is believed to be elastic, acquire new customers and hold/grow existing customers.

Customer acquisition must be the sexy strategy for marketers because almost every company uses it rather than pour resources into the other options.

In my experience, the customer acquisition approach is short sighted and adds questionable value to the organization over the long term.

The reason: marketers will do almost anything to add a customer with the belief that new customers will bring new revenue.

They drop their prices and offer free stuff to entice someone away from their current supplier. Ever seen a special promotion offering a free TV or iPad or 3 months free? We are constantly inundated with these types of offers.

Marketers believe that revenue growth from new customers in the long run will more than offset any price reduction offered or the added costs of the free stuff offered as a switching incentive.

There are two reasons why marketers who believe this are fooling themselves.

First, why wouldn't the customer who was attracted by the special promotion leave and go elsewhere for a better more compelling proposition?

Since they accepted your special deal they have qualified themselves as a switcher who is motivated not by the value offered by the supplier but by the savings they can get.

Rest assured they will leave you in a heartbeat for another special offer ; they shop around and show no loyalty to any organization.

Second, there is a huge opportunity cost with this strategy; it comes from the current base of loyal customers who are not offered any special deal - "they don't qualify for the special promotion".
These loyalists discover that the deals are being offered to people who have never been a customer with the organization, and what's worse it's been kept a secret to the existing base of customers.
The upshot is they get pissed off and leave, sharing their negative feelings with as many people they can. And revenues go DOWN as a result.

In my book, the hold/grow option is the best long term solution to grow revenue.

Invest in preventing your loyal customers from leaving by continuing to provide them with meaningful solutions that solve their problems and scratch an itch that they have.

Offer THEM all the special deals and promotions FIRST to show them how much you appreciate them and their business.

Forget the marketing sizzle. It costs much more to acquire a new customer than retain an existing one. And the added revenue results are questionable if not downright imaginary.

Marketers - be boring. Devote your energy into earning the continued trust of your current customers each and every day.

They will repay you with a revenue stream that grows.



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