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Why don’t customers renew?

December 6, 2012

Selling to existing customers is widely recognised as the most cost-effective form of marketing, yet often it is the case that these same customers can fail to renew. It can be argued that this is a result of either having a poor product or undertaking poor marketing - or a combination of both. This is often not actually the case – although it is indicative of a style of management thinking which is often prevalent.

How do customers engage?

Brand marketers argue that a customer’s emotional and physical engagement with a brand are what drives both purchase and renewal. By combining effective delivery with a “warm” brand strategy, companies can create reliable revenue streams from a loyal customer base.

We can therefore observe that in such a case, bland or lifeless renewal initiatives have the potential to turn brands cold at a critical point: renewal. It is thus argued that brand warmth is a fundamental of business relationships; brands must be consistent throughout the period of consumer engagement.

Here, of course, we define brand in its widest sense: an emotional connection between consumer and product/company which creates sufficient relevance for both as to deliver a long term commercial relationship.

Business processes can cause renewal problems

But problems arise if we consider the renewal processes within a business. In taking a prosaic, statistically-based view of renewal and, as a consequence, failing to connect individually with those customers who make up the statistical mass, companies can damage the hard work of years. But it is often the case that systems and reports drive business thinking, often at the neglect of what drives business itself: human interaction.

Groupthink within an organisation, it can be seen, can create environments where statistical data have taken the place of the considered account management which delivered the original sale. Accountants can drive the emotions of the boardroom by fixing on percentage point shifts; if these are not discussed objectively then we can understand readily how marketing and sales can be made to panic over critical issues.

Platitudes can replace focus

In a business environment where financial pressure exclusively begins to drive decision-making, problems can begin to occur. “Understanding the customer’s needs” when the sale is made becomes “making the customer help the company” when renewal time arrives. Transactions on these occasions are prompted less through performance promise and more through other factors such as special offers, reduced prices and premiums.

It is the observation of all who have sold that a sale made in haste is repented at leisure. Pressure to hit targets can often result in attracting “the wrong type of customer”. Discounting at birth leads to discounting through life. Sales made on the basis of savings rather than value often deliver unreliable long-term figures.

More, sales or renewals prompted by premiums and discounting create longer term problems – the consumer decision turns less on performance and more on saving money. In this environment, the potential for power transactions based on value is signficantly reduced.

The importance of value

In considering why customers do not review, companies will benefit from reflecting upon who they are and what they provide. Yet soul-searching of this nature is often not conducted with an open mind and a willing heart. Instead, some companies choose a process of data-driven flagellation, conducting simple telemarketing exercises to lapsed customers asking why renewal did not occur.

This method, I have seen, often serves as a statistical exercise in itself, with the telesales staff conducting a “tick box” exercise of “reasons” which often are flawed (“too expensive“; “no budget“; etc). If at the end of this process a company finds out that 30% of non-renewals were due to the product being “too expensive” or the customer having “no budget”, what information does this really provide?

The valid question – some would argue the only question – should be “why do you really no longer want this product?”

Conclusion

It is a fundamental truth of non-renewal that the price being charged does not offer value in excess of that price. The challenge for every company is to ensure that the value it offers is consistently relevant to the consumer. Marketing can “dress up” a tired product; sales can offer price incentives but if the product is stale and has become in itself commoditised, then it is argued that this is the prime reason for reduced renewal performance.

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