vSente is a marketing consultancy. We help challenger enterprises wage and win battles for market shares.

Disciplines - Advertising | Marketing | Sales
Competency - Challenge | Defend
Deliverable - Profitable Market Share
Audience - CEO's | Marketing | Sales
Scale - Small | Medium-sized Enterprise
Services - Campaigns | Workshops
Location - San Francisco | London


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Customer Acquisition and Customer Retention - Different Sides of the Same Coin?

New customers may be a meaningless metric? This rather controversial statement was part of AMR's Bruce Richardson's NASSCOM Diaries wherein he describes the state of India's IT industry. During a conversation with Richardson, Azim Premji, Wipro's chairman, offers his take on the difference between customer retention and acquisition:

During my meeting with Azim Premji, Wipro's chairman, I asked him about the new customer metrics. He started by saying that his number reflects net new customers, or new business minus the closed accounts.  That figure was 37 in the last quarter.  Then he said something surprising:  I'd like to get that number to zero.  He said that chasing new business was very expensive and time consuming, and that there is no guarantee of a long-term relationship.  He said that Wipro's strategy is to focus on must-have accounts. Instead of net new business, a more important indicator may be repeat business.  Mr. Premji said that 93% of revenues come from existing accounts.

I began hearing customer retention rationalizations like Azim Premji's, back in the late 70's. We sales folks were being told that it was cheaper and easier to maintain an existing account as opposed to prospecting and closing a new account. This rationalization was driven primarily by the costs incurred in pursuing new customers that were theoretically not needed to service existing accounts. Costs like advertising, travel and entertainment. The accountants loved this rationalization.

I was first presented with the customer retention rationale during a Xerox Professional Selling Course which were quite popular back in the day. I remember our instructor going to great pains to make sure we understood the risks of focusing on maintaining old customers over finding new customers. His point was that it was easy to maintain an existing account- the tough part was winning new accounts. Tough because it took a special breed to deal with cold-calling and rejection. He explained that you needed organizational skills to manage existing accounts and aggressive, competitive instincts to fight for new accounts. And that these skills tended to be mutually exclusive. Contemporary hunting and gathering.

The 80's saw the emergence of a new sales role called key account managers. Key account managers were charged with maintaining and expanding the business of a current account. Organizational and nurturing skills were highly-valued in this role. Key account managers were trained to be advocates for the customer - in essence an employee of the customer. In fact many key account managers actually had offices or a desk at their account. IBM in the early 80's advanced this practice to an art form. An important element of key account management was to work with the customer as a partner in collaboration.

During the 80's there seemed to be a well-balanced portfolio of competencies in the sales and marketing suite. An effective combination of nurturing and aggression. But as the nineties unfolded, and new economy notions took hold, the kinder gentler crowd began to monopolize the conversation. And like any system that becomes unbalanced, the sales and marketing suite began exhibiting decidedly dysfunctional behavior. Customer acquisition skills are different from customer retention competencies. A healthy, vibrant sales and marketing organization needs both sets of skills in order to thrive.

Christofer Bassford in a recent post offered the following analysis of offense and defense - which can be considered the functional equivalents of customer acquisition and retention: 

Whenever two concepts form a true logical antithesis, in other words, one is the complement of the other, the one is essentially implied in the other. However, if the limitations of our mind do not allow us to consider both at once, and to find the totality of one by mere antithesis in the totality of the other, in any case, nevertheless, strong light is shed by one that is adequate to illuminate many parts of the other.

Hence in addressing the attack, we shall most often have the same subjects before us as when considering the defense.

Interesting analysis.

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