By David Mackay   /

In today’s world, consumers are presented with more choice than ever before. Competition for share of consumer wallet has increased exponentially as businesses continue to innovate, leverage technology, and disrupt in order to become more competitive.

In such an environment, customer loyalty becomes a prized possession. The ability to count on continued patronage and revenues from returning customers is essential to building a stable growth business.

This is particularly important for those businesses that rely on membership or subscription models, such as energy, insurance, sports clubs, and, increasingly, media and tech companies.

These businesses predominantly rely on the value proposition that an annual contract, subscription or membership is better value or more convenient than buying intermittently or shopping around.

Historically, membership models used to rely on switching costs to avoid customer churn (waiting periods, joining fees, exit fees), but as competition for sales increases we are seeing many of these penalty style lock-in costs waived for customers, recognising that they can create a sense of resentment.

Instead, we have seen a move to rewards-based loyalty programs based around points redeemable for products, special loyalty discounts, and unique experiences. The intent of these programs is to reward those customers that have been loyal over time through repeated purchasing behaviour, recognising their lifetime value to the organisation.

Sales strategies sending the wrong messages

Unfortunately, time and time again, we see company sales strategies for acquiring new customers undermining these messages of loyalty being valued and rewarded.  While these strategies may result in short-term boosts to customer numbers and sales, they send a message to customers that better deals are available if you shop around and promote customer churn.

Some examples across industries include:

Health Insurance

New Customer Sales Pitch: Switch to [insert health insurer] now and receive a free [Fitbit/six-month subscription to Presto].

Existing Customer pitch: Sorry, this offer is not available to existing customers

What you’re really saying about loyalty: Sure, you may have been a member for 10 years, but if you want to be rewarded, you need to leave us first.

Result: Churn rates in the Private Health Insurance industry in Australia are at record high levels rising from 8.8% in 2013 to 10.5% in 2015.

Energy Retailing
New Customer Sales Pitch: Switch to [insert energy retailer] now and receive [a 20% discount/$200 off/one month free].

Existing Customer pitch: Sorry, this offer is not available to existing customers

What you’re really saying about loyalty: We just want to keep signing new customers, we don’t really care about you once we have you.

Result:Australian Energy retailers regularly see churn rates upwards of 25%.

Sporting memberships

New Customer Sales Tactic: Star Player [X] calls previous year member who hasn’t renewed to encourage them to sign up.

Existing Customer pitch: Email thanking them for renewing

What you’re really saying: Hold off on your membership renewal to get a phone call from the star player

Result: New season renewals get pushed further and further back and greater investment of player time is required to convert member renewals.

Flipping the message

New customers are undoubtedly important, and in highly competitive markets you need an offer that stands out. But before you launch your next new customer sales strategy, stop and think about what the implications are for your existing customer base.  What message are you sending about how you value them?

Could a strategy of rewarding existing customers ahead of new customers actually be sending a stronger message to potential new customers about how you will value them and what sort of relationship you want with them?

Key Contacts

David Mackay  /  Partner

David Mackay is a Partner at SPP and he leads SPP's Sports, Media & Entertainment and FMCG/Retail practices. David assists organisations to develop and execute business and technology strategy, and improve business performance through people, process and technology.  David...

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By David Mackay   /