Customer Service IS Marketing.

No doubt you’ve heard, “It costs less to keep customer than it does to create a new one.” Assuming this is true, it would seem logical that companies should spend more on acquisition than retention, which is exactly how the data play out. According to a recent report from Econsultancy, 65% of marketing budgets are allocated to acquisition compared to only 35% that are spend on retention marketing.

This represents old world thinking. The logic of spending more on acquisition than retention in fundamentally flawed — it merely perpetuates the problem. Let me explain.

I recently cancelled my account with the premium television provider I have subscribed to for seven years. They wouldn’t replace my receiver. My point was simple. Each month I paid a “rental fee” for the equipment, the equipment wasn’t functioning properly, and so I believed they should replace it at no cost.

They didn’t see it that way. The rep on the other end of that call was simply following the “rules,” which said that I was responsible for shipping and installation fees.
And so they lost a longstanding, loyal, top-tier customer over $50 — less than half my monthly bill.

The lesson became clear when I called to cancel a few weeks later. I was transferred to the “customer retention department.” To keep me as a customer, they offered to enroll me in promotional programs normally reserved for new customers — worth substantially more than the $50 it would have cost them to alleviate the situation from the start. Sorry. Too little, too late.

The problem? They don’t invest in keeping existing customers happy, while they invest heavily in promotions aimed at acquiring new customers.

There’s no point in naming the company because nearly all cable and satellite providers do the same dumb thing. And it’s not just them; insurance companies, cellular providers, and banks do it, too. Ally Bank’s straightforward campaign points out the ridiculousness of neglecting current customers in favor of new ones.

On one hand, marketers’ focus on acquisition makes perfect sense. Growth is the primary goal of any company — and new customers are required in order to grow. However, there is a point of diminishing returns where acquisition efforts are simply replacing customers that have already left — the classic leaking bucket.

This leaves two potential solutions. The first is to pour even more money into acquisition. This only perpetuates the cycle because things like product development and customer service get less funding. The second is to shift budgets toward retention — specifically customer service.

At this point, you may be asking, “Wait a minute, what does this have to do with Gen Y?”

Everything.

For years, companies have been able to play this shell game and get away with it. Burn one customer and there was another close behind to fill in.

But Gen Y drove the adoption of open communication technologies and that adoption has led to adoption among Gen X, Boomers, and even senior citizens. Burn one customer today and they can tell people — more people, faster than ever before — that you burned them. Remember Verizon math? Or Shamwow sucks?

Most customers won’t go to these extremes. Maybe they search for “[insert brand here] sucks” on Facebook and “like” it. Or maybe they can’t find one, create their own “sucks” page, and invite their friends to join. Maybe they just text a few friends while on hold for your “customer retention department.” Or maybe they do go to the extreme and make it their personal mission to embarrass your brand.

On the contrary, think of brands that symbolize great customer service: Nordstrom, Zappos, Starbucks. Their reliance on traditional marketing goes down over time because their customers do the advertising for them. They don’t rely on discounts to draw in customers, they charge a premium for great service and word spreads from one loyal customer to the next.

Per the CMO Council, only 19% of a CMO’s span of authority includes customer service. Yet, as one consumer told me in a recent focus group, “When I have an issue, I’ll call and then email, but if I don’t get the help I’m looking for, look out! They can’t ignore me when I put it on Facebook and Twitter.” Social media levels the playing field. Marketers can no longer hide poor service with slick branding and promotions. Instead, we need to embrace customer service as one of our most valuable marketing channels — for both retention and acquisition.

Progressive marketers will embrace this accountability instead of fearing it. Really progressive marketers will thank Gen Y for ushering in this new era that forces them to become better companies.

By Morgan Stewart
Morgan Stewart is Principal, Marketing Research & Education Group, at ExactTarget, a provider of on-demand email and one-to-one marketing solutions.
Courtesy of MediaPost