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Golden Goldfish Excerpt – Retention vs Acquisition

The following is an excerpt from the upcoming book, What’s Your Golden Goldfish? (available on Amazon May 1st):

Golden Goldfish Book

Chapter 2

RETENTION VS. ACQUISITION

“The search for meaningful differentiation

is central to the marketing effort. If marketing is

about anything, it is about achieving customer

getting distinction by differentiating

what you do and how you do it.

All else is derivative of that and only that.”

– Theodore Levitt, Harvard Business School

Question: Do you focus on the funnel or fix the leaky bucket?

retention versus acquisition

Answer: Focus on the Leaky Bucket

Retention is Fast Becoming the New Acquisition

Satisfaction drives loyalty.  More importantly, it drives retention.  The key to a healthy bottom line is the ability to keep your best customers and employees.

According to the recent book Outside In by Harley Manning and Kerry Bodine, {Endnote 13} retaining customers drives revenue in three critical ways:

  1. Incremental sales from current customers.
  2. Retained sales as a result of lower churn.
  3. New sales driven by word of mouth (referrals).

Can small improvements in retention make a big difference?  Absolutely. According to Gartner Group, {Endnote 14} “A mere 5% improvement in retention can increase profitability by upwards of 25% to 125%.”

The Revolving Door Effect 

Too much focus in business is on acquisition.  The vast majority of spending is focused on getting prospects through the door and converting them to customers.  Little attention is paid to their retention.  For most companies this door represents a revolving door.

Let’s use the insurance category to illustrate the point.  The average insurance company maintains a retention rate of 80%.  USAA, a leader in customer experience, retains customers at a rate of 97% {Endnote 15}. Christine Moorman, the T. Austin Finch Professor of Business Administration at the Fuqua School of Business at Duke University, demonstrates how this plays out over a three-year time frame.

The results are eye opening.

meng-blend-image-1-300x277

Companies with 80% retention will have to replace over 50% of their customers every three years.  Comparatively USAA only needs to replace less than 9% of its customer base over a similar three-year period. 

Retention of the Vital Few

Based on the Pareto’s Law, {Endnote 16} for the vast majority of companies, 80% of profitability is driven by 20 percent of customers.  These customers are your key accounts. Retaining these customers should be your top priority.

Let’s start exploring how companies utilize the concept of the Golden Goldfish to retain these vital few. Little extras that drive loyalty and referrals.

Retention vs. Acquisition: Do you focus on the funnel or fix the leaky bucket?

retention versus acquisition

[This post was originally posted on MENG Blend. MENG is the indispensable community of executive level marketers who share their passion and expertise to ensure each member’s success]

Answer: Retention is Fast Becoming the New Acquisition

Satisfaction drives loyalty.  More importantly, it drives retention.  The key to a healthy bottom line is the ability to keep your customers.

According to the book Outside In [click here for infographic] by Harley Manning and Kerry Bodine, retaining customers drives revenue in three ways:

  1. Incremental sales from current customers.
  2. Retained sales as a result of lower churn.
  3. New sales driven by word of mouth (referrals).

Can small improvements in retention make a big difference?  Absolutely.  According to Gartner Group,

A mere 5% improvement in retention can increase profitability by upwards of 25% to 125%.”

The Revolving Door Effect 

Too much focus in marketing is on acquisition.  The vast majority of spending is focused on getting prospects through the door and converting them to customers.  Little attention is paid to their retention.  For most companies this door represents a revolving door.  Let’s use the insurance category to illustrate the point.  The average insurance company maintains a retention rate of 80%.  USAA, a leader in customer experience, retains customers at a rate of 97%.  I recently heard Christine Moorman, the T. Austin Finch Professor of Business Administration at the Fuqua School of Business at Duke University, discuss how this plays out over a three year time frame.  The results are eye opening.

Retention Impact

Companies with 80% retention will have to replace over 50% of their customers every three years.  Comparatively USAA only needs to replace less than 9% of its customer base over a similar three year period. 

Retention of the Vital Few

Based on the Pareto Principle, for the vast majority of companies, 80% of profitability is driven by 20 percent of customers.  These customers are your key accounts. Retaining these customers should be your top priority.

Coming Spring 2014Over the next ten months, I will be exploring how companies utilize the Goldfish Rule to retain these vital few.  Little extras that drive loyalty and referrals.  My findings will complete the third and final leg of the Goldfish trilogy.  Purple Goldfish focused on customers, Green Goldfish focused on employees, and now the Golden Goldfish will focus on 20% of customers and employees.

Any good examples or best practices to share?  How do you work towards retaining your Top 20%?

Today’s Lagniappe (a little something extra thrown in for good measure) – Here’a a slideshare showcasing best in class examples focused on retention building practices. It contains 9 lessons from leading brands from Apple to Zappos:

Outside In has a simple message: You need customers more than they need you

Outside In: The Power of Putting Customers at the Center of Your Business

Outside In is a book by Harley Manning and Kerry Bodine of Forrester Research. Harley and Kerry are following in the pioneering footsteps of Forrester’s Josh Bernoff. Josh wrote Groundswell (with Charlene Li) and Empowered.

The book provides a roadmap for creating a focus on customer experience. I’d highly recommend picking it up and sharing the book with your CEO.

Here’s my review with key takeaways:

outside in book review

Today’s Lagniappe (a little something extra thrown in for good measure) – Here’s a YouTube video with Harley Manning talking about Office Depot. Of the 80+ stories in the book, this one is hands-down my favorite. The book begins and ends with it. Harley touches on the “Undercover Boss” aspect in the video, but here are the details. President Kevin Peters sits incognito in an Office Depot parking lot in New Jersey. He notices an employee standing just outside the door smoking. After watching customers leave empty handed through a cloud of smoke, Kevin can’t take it. He decides to blow his cover, walking inside to find the manager. He looks for the picture of the manager on the wall. Guess who? It’s our smoker. The book ends with Kevin Peters and Office Depot. Kevin and his team decided to give the store manager in New Jersey a second chance. A wise choice, the store eventually became on the top-ten stores in the nation for customer service. More importantly, the comparable store sales were positive for a 12-month period.