Customers are scarcer than capital
Aug. 8th, 2005 11:46 am![[personal profile]](https://www.dreamwidth.org/img/silk/identity/user.png){kind=small}
peterbirksWhat do ambitious CEOs talk about at board meetings? Frequently, it's access to capital. If you aren't well capitalised, they argue, then the company might go under. Capital is needed to expand. How can we raise capital?
In fact, the argument is specious. Swiss Re, the second-biggest reinsurer in the world, says that you don't need to worry about your capitalisation, provided you have ready access to capital when you need it. And if you have a well-run company, then the capital will be available, because there is plenty of capital around for well-run companies.
What ambitious CEOs should be worrying about is customers — a commodity in far-more fixed supply than they realize. And they should be more worried about keeping customers than gaining new ones, because it is a lot cheaper to keep a customer than it is to get a new one.
So why on earth don't more companies practise this? For example, mortgage companies will frequently offer better deals to new customers than to existing ones. Banks do the same. Gambling on "customer inertia", companies routinely screw the loyal customer and reward the flitterer, only to recategorize this beast of their own making as a "rate tart". Well, what did they expect?
Don Peppers is a marketing man with whom I've had dealings on and off since 1996. He was a pioneer of one-to-one marketing, which was really a flashy way of saying that broad-based marketing campaigns were shite and that modern technology made much more targeted marketing possible. Tesco, for one, adopted this idea with gusto, hence their specialised "bonus offers" when you get your money-back vouchers every month.
Now he's talking about "return on customer" rather than "return on capital" or "return on investment". Because return on customer is hard to measure, most companies (the ones that fuck up, actually) get it spectactularly wrong. They look at hard numbers in the short term, and then wonder why things are going belly-up. Some others, including Tesco, Kwik-Fit, and presumably some in the financial sector, although I haven't found them, approach the return on customer more sensibly. Keep the customers that you have by keeping them happy, and then they will not be tempted away by short-term offers.
Now look at how to balls it up. I went to Fitness First today and, somehow, they managed to lose all the doors to the shower cubicles. A notice half-heartedly stuck to the wall (for the benefit of staff rather than customers) said that some geezers had come overnight to change the cubicles, but had then found that the doors didn't fit. So they pissed off, saying "someone should be back later in the week".
Marvellous. Fitness First is not alone here. Indeed, there are companies such as NTL who are legendary in their hopelessness when it comes to dealing with existing customers. perhaps if Peppers could convince them that they are destroying a commodity far scarcer than capital, they might wake up.
But, once again, I won't be holding my breath.
In fact, the argument is specious. Swiss Re, the second-biggest reinsurer in the world, says that you don't need to worry about your capitalisation, provided you have ready access to capital when you need it. And if you have a well-run company, then the capital will be available, because there is plenty of capital around for well-run companies.
What ambitious CEOs should be worrying about is customers — a commodity in far-more fixed supply than they realize. And they should be more worried about keeping customers than gaining new ones, because it is a lot cheaper to keep a customer than it is to get a new one.
So why on earth don't more companies practise this? For example, mortgage companies will frequently offer better deals to new customers than to existing ones. Banks do the same. Gambling on "customer inertia", companies routinely screw the loyal customer and reward the flitterer, only to recategorize this beast of their own making as a "rate tart". Well, what did they expect?
Don Peppers is a marketing man with whom I've had dealings on and off since 1996. He was a pioneer of one-to-one marketing, which was really a flashy way of saying that broad-based marketing campaigns were shite and that modern technology made much more targeted marketing possible. Tesco, for one, adopted this idea with gusto, hence their specialised "bonus offers" when you get your money-back vouchers every month.
Now he's talking about "return on customer" rather than "return on capital" or "return on investment". Because return on customer is hard to measure, most companies (the ones that fuck up, actually) get it spectactularly wrong. They look at hard numbers in the short term, and then wonder why things are going belly-up. Some others, including Tesco, Kwik-Fit, and presumably some in the financial sector, although I haven't found them, approach the return on customer more sensibly. Keep the customers that you have by keeping them happy, and then they will not be tempted away by short-term offers.
Now look at how to balls it up. I went to Fitness First today and, somehow, they managed to lose all the doors to the shower cubicles. A notice half-heartedly stuck to the wall (for the benefit of staff rather than customers) said that some geezers had come overnight to change the cubicles, but had then found that the doors didn't fit. So they pissed off, saying "someone should be back later in the week".
Marvellous. Fitness First is not alone here. Indeed, there are companies such as NTL who are legendary in their hopelessness when it comes to dealing with existing customers. perhaps if Peppers could convince them that they are destroying a commodity far scarcer than capital, they might wake up.
But, once again, I won't be holding my breath.
