Recently, I broke up with my cable company. It was actually a very painful thing for me to do. You see, I don’t like change; I’m a loyal customer. I’ve thought about this breakup for years. I moved into my current home seven years ago and I’ve had the same cable provider since the move. Every year, my cable bill would creep higher and higher each year. Each time it happened, I would contemplate a change. My cable company provided both my television service and my internet service. I still had a landline for home phone service. There were so many reasons not to leave. With another provider, I wasn’t sure if I would have to pay more for cable channels I’m used to getting. I didn’t know if the service would be as stable as my cable service. Would my internet service be fast enough?
To make a long story short, I left because of a terrible customer experience. It was solely based on one bad interaction with one customer service rep. Within a week of the cancelling my service, my cable company’s telemarketers were reaching out to me with new offers. It was rather ridiculous because the new offers cost the cable company much more than keeping me in the first place.
As a result, I’ve been contemplating the cost of losing a loyal customer. It usually results in higher expenses, lower revenue and damage to brand value.
Marketing expenses increase as customers leave
Generally, the marginal cost of keeping an existing customer is lower than the cost of acquiring a new customer. It’s also lower than the cost of re-soliciting a former customer. As a result, churn and marketing costs are positively correlated. As existing customers leave, companies must put more marketing dollars into new customer acquisition to keep revenue flat and even more to grow.
Average revenue declines when customers exit
In nearly every business model, the average revenue from an existing customer is higher than the average revenue from a new customer. Said differently, once a customer has made one purchase, that customer has given permission for a conversation for a second purchase…and a third and a fourth… In subscription-based models, the longer a customer stays, the more likely that customer will stay longer. This loyal customer requires an adequate investment in customer service.
Brand value is damaged when customers leave
Former customers cost companies an unknown, but likely large, amount of brand damage. Most people are more willing to share a negative brand experience than a positive brand experience (which explains why we often find mighty fine restaurants with mediocre online ratings). Again, this is why the customer experience—even for loyal customers—is so critical.
This is not to say that all customers are valuable. It’s important to understand the value of each customer segment. Ah, but that’s another discussion for another day.
As for me, I still don’t like change. And, the breakup with my cable provider was hard. Maybe I’ll go back one day…but it’ll cost them!