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Everyone says that it is cheaper to hold a customer than to acquire a new one. But why do most companies act exactly the other way. My ce…

Posted by Hemant Puthli on December 27, 2012

Answer by Hemant Puthli:

Your question already contains a hint to explain this phenomenon. I will try and expand on that theme a bit here and throw-in a few more points.

Within the perspective in which this question is framed, it may be useful to classify sales strategies into two types: hunting (acquiring new customers) and farming (defending the existing customer base and getting more revenue from existing customers by cross-selling and up-selling). Typically, companies should use a combination of both to maximize their revenue potential and simultaneously defend and grow market share. The exact point where these two strategies balance out may vary from industry to industry and from market to market, but there always is one. The challenge is to find it.

The general assumption made by hunting-oriented sales teams is that an acquired customer won't easily switch to competition, and so may be "taken for granted". Instead they believe that in an ever-expanding market "pie", it is imperative to grab as much market share (i.e. new customers) as possible, before competition does. If the "pie" is not constantly expanding, then they'd argue that it is all the more imperative to acquire the finite number of potential customers in a closed universe/ marketplace.

The basis for taking existing customers for granted could be a combination of beliefs such as: (a) the belief that switching costs are high (b) the belief that our products/ services/ support offer the best value for the customer's money (c) the belief that our loyalty programs are effective. Whether or not these beliefs are backed-up by fact is an open question and the answer would vary on a case-by-case basis.

However, customer stickiness/ "lock-in" is never as easy as one would like to think, and the job of "hunters" from the competing sales force is to prove that it can be done. They will attack beliefs (b) and (c) and propose alternatives to reduce your customer's switching costs i.e., belief (a). All it takes for their relentless sales pitch to strike root is a few bad experience your customer might have. This is exactly why it is important to "defend" the customer base from such an "attack" but sadly, many companies don't see the cold logic in this. Mainly because it is not "sexy".

In many companies, the persona of the hunter (a typical alpha male – the hero who brings home the kill, fighting all odds) dominates strategy discussions, and this explains why despite cold logic, such companies tend to favor hunting rather than farming. Investor pressure to show growth in revenues and market share is translated by such heroes to a mandate for hunting, though (in many cases, but not all) such goals could probably be met almost entirely by farming too, and definitely (in all cases) by finding the optimum point of balance between the two.

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