Branding/Marketing/PR Magazine Thought Leadership

What science says is the best way to win back lost customers

There is a belief that recruitment, like all sales professions, is a numbers game – the more calls you make the higher your billings. That was certainly the mantra preached to me when I worked in sales, although I didn’t quite agree with it – focus on quality pitches rather than scattergun approaches will always win the day in my book.

I started my sales career in 1995, selling advertising and recruitment advertising for the likes of Prospects Graduate, The Daily Mirror, Prospects, Yell (that was tough) and latterly Monster. It was a career that I loved and and it was my time at Monster that led to me move sideways into PR and Marketing for the recruitment sector in 2006, with said company being my first client and one I would continue to work with for five years.

But throughout my sales career, the companies I worked for continued to spend vast sums of money on TV and online marketing in an attempt to stem the rate of churn and replace some of the clients they lost.

However, research suggests this is the wrong approach to take.

Contrary to widely held belief, the research has found that the most effective marketing strategies are not focused on winning new customers. Rather, the smart strategy is to concentrate on winning back lapsed customers instead.

Leading the research was V. Kumar, a marketing professor at Georgia State University in the US. His findings were published in the Harvard Business Review and turn the notion of what makes a successful marketing campaign on its head.

Kumar has identified three key reasons for companies to prioritorise lapsed customers over new ones:

  1. They have done business with you before and as such have already demonstrated a need for your services. This makes them a far better – and an easier – sell than one who is simply a name on your cold-call list.
  2. As well as demonstrating a prior need for your services they are already familiar with you – a factor that enables you to instantly get your voice heard above the noise as there is no need to ‘sell’ your brand or educate them on what you can do for them. This means that the cost of marketing to lapsed customers is lower as it saves your consultants significant time at the pitch stage.
  3. Finally, there is big data. Technological advancements and CRM’s have far superior capabilities than they once did. As such they enable recruiters to draw upon information about each former client and target what Kumar describes as “the most profitable defectors”.

For their research, Kumar and his team studied data on 53,000 customers who had left America’s third largest telecoms company over a seven-year period. They analysed the reasons why customers left in the first place and how responsive they were to so-called “win-back” offers.

To do this they posed four key questions – the responses were rather surprising, even to someone who has worked in the media industry for over 20 years.

How likely is a given customer to come back?

In response to Question 1, the researchers found that former clients who have referred others, have never had cause to complain or they have had an issue but that issue was satisfactorily resolved, ranked highest in terms of those lapsed customers most likely to return. Those who quibbled over price were the least likely to do business with the same company again.

How long will a reacquired customer stay, and how much will they spend?

In response to Question 2, it was found that returning customers tend to come back on board for a longer period than when they last worked with that company. And they spent more too. According to the research, the average spend was around 11% higher the second time around.

Which people should get which offers?

In response to Question 3, it was made clear that the one-size-fits-all marketing incentives simply do not work. 40,000 former customers were offered one of four different options:

1) a discount

2) a service upgrade

3) a discount and an upgrade, or

4) a tailored package.

Option 3 generated the highest win-back rate (47%) followed by the tailored option (45%). The single stand-alone offer, option 1, yielded a 41% win-back rate.

Which win-back strategy is the most effective?

In response to Question 4, the researchers pointed out that although option 1 was less appealing, it was the cheapest to implement and presents the highest ROI. By contrast, while the bundled offer, option 3, has the highest conversion rate it is actually the most expensive and therefore has the lowest ROI. In other words, option 1 is the best because it is the most profitable.

Kumar warns against companies whose focus is on selling to the largest number of customers – something he argues comes at the expense of profit.

As he told Harvard Business Review: “Wall Street rewards the acquisition rate – how many customers did you add this quarter? – rather than how much money did you make from these customers?”

Kumar’s research has found that:

the very act of identifying those lapsed customers who are most likely to come back on board, rather than trying to appeal to every man and his dog, often results on an eight-fold win-back rate.

So, when seeking to appeal to former customers, don’t use a scattergun marketing approach in the hope that one of them will bite. Think about what offer will yield the highest ROI and will be more enticing to them.