New business development is obviously an important part of business.
But client retention is integral.
It is far more important than new business development in terms of sustainable growth, yet doesn’t always have the prominence necessary to achieve this.
In some respects, it is a false comparison since client retention is a form of business development. Sales and revenues can increase from existing customers – increasing volumes, increasing margins or benefiting from advocacy and referrals.
And this is what the core focus of a business should be – servicing and delighting its core customers.
A successful business doesn’t need the most customers in its category, but it helps to have the happiest and most loyal segment (or “tribe”, to insinuate some of Seth Godin‘s beliefs).
This shouldn’t be sacrificed for the sake of bringing in more customers.
It leads to overpromising and underdelivering, causing problems for both current and new customers. I’ve witnessed a couple of examples of each
1. Making unsustainable promises: New customers may receive incentives to convert – a discount price or an extra level of service. Sometimes this is made clear, but often it isn’t. At work we were initially happy with a new supplier, but gradually the price rose and the quality of service deteriorated. It is understandable that quality of delivery varies by employee, but companies should ensure the bare minimum is of acceptable quality. This wasn’t.
2. Misselling a service: I find this issue more prevalent when the person/department for business development is different to that for ongoing account management. The sales peoples’ bonuses are short-term and based on bringing customers i; this incentivises them to oversell and make unsustainable promises. The project team then have an impossible task to live up to. And so it proved.
The above two examples highlight the problem of churn. There will always be some level of churn but a high level of departing (unsatisfied) customers completely counteracts the work that has gone into developing new business. Eventually the opportunities dry up, and the company retreats to its core.
If that core remains
3. Alienating the core audience: Moving into new markets or new segments risks alienating the core audience, if the messages used to entice the potentials aren’t consistent with what attracts the core audience. A couple of years ago ITV1 spent a lot of money on contemporary drama to try and bring in a more upmarket audience. Unfortunately, the programmes weren’t received well by the core audience and viewing figures were dismal.
4. Offering sub-standard products or services: Reaching out to new audiences may divert resources away from maintaining the quality of a core product or its associated service. I’ve seen this with MLB.tv. I’m a casual fan living in a timezone where most games don’t start until after midnight. I’ve found the archive service perfectly fine. But the core product – live games in HD and with DTR functionality have developed several faults. Not only are the core fans being deprived of their need to support their team, but the online customer support has been completely inept. Two examples of this are (you may need to click on them to enlarge and make them readable):
When this happens, the company ends up as a doughnut – it has some mass at the edges, but no centre.
Business development might make some short-term gains, but losing sight of customer retention will only hurt in the long run. An organisation needs to ensure it delivers on the factors that causes its core to be loyal advocates – whether uniqueness, timeliness, durability or aspiration. It’s brand promise, essentially.
Customer lifetime value might be factored into business development strategies. But without adequate support across the organisation, it remains unfulfilled as core customers depart and new customers reject the offer.
“We treat all clients like they’re new clients – it’s the lifeblood of our survival.”
Image credit: http://www.flickr.com/photos/hackett/159428076/