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Marketing has been defined by some as the art of getting and keeping customers. Much of marketing has been cast around the "getting" problem. We have neglected the "keeping" problem. Keeping requires some thought; it goes beyond what the customer service department does. It gets into how to satisfy the customer, how to get the customer to be a frequent buyer, and how to form links with customers that create exit barriers that make it more expensive to switch than stay. These things must be thought through because the first defense of any company is to keep its customers. Defection is the worst thing that can happen.
That is not to say all customers are worth keeping; interestingly enough, an organization's large customers sometimes fall into that category. For many companies, their medium-size customers are the most profitable ones; their larger customers usually want a deep discount and special services. In those situations the net yield may not be very good.
Most marketing theory is about how to make a sale. The whole notion of STP (Segmentation, Targeting, and Positioning), a strategic form of marketing, says very little about keeping the customer after the sale. The fact is, most companies neglect their customers once they have attracted them.
Companies need to practice wrap-around marketing, which encompasses both getting and retaining customers. Wrap-around marketing involves market and customer analysis before, during and after the selling effort. Even so, wrap-around marketers have to make sure customer lifetime value exceeds new customer acquisition costs.
For example, a bank recently announced that it will deposit $10 in each new account opened. What is their cost of customer acquisition? It is at least $10; it is probably more like $30 or $40 once all the advertising the bank has done to publicize their offer is taken into account. Their total marketing budget for this particular promotion divided by the number of new customers, plus $10 per customer, is their customer acquisition cost. The second number the bank needs to know is the lifetime value of each newly acquired customer. If a depositor opens a new account and then quits in a week or two, the bank has lost the entire cost of customer acquisition. If the bank does not do...