The Myth of the Heavy Buyer
You’ve probably heard some version of this statement thrown around in marketing meetings,
[…] companies can boost profits by almost 100% by retaining just 5% more of their customers.
It’s a powerful statement, and it hits just right.
And also hypothetical.
It’s the same as getting an overly ambitious sales goal with your boss trying to convince you that all it takes is selling 10 000 € more here, and 5 000 € more there. Easy peasy!
That should give anyone who’s ever managed P/L night sweats.
Selling to your existing customers is easier but not as clever a strategy as it’s made out to be.
Don’t believe me? Ask Nick Woodman.
He’s a surfing nut from Santa Clara, California, and the guy who invented GoPro.
By 2004 the standard video camera market had already become tired and dull. Sony and others had tried to enter the market and failed. And GoPro wasn’t the first wearable camera either.
But GoPro was different because it wasn’t a strap-on camera for capturing Point-of-View video. It was a camera for people with a devil-may-care attitude. It embodied the spirit of adventure and risk-taking.
People who bought GoPros already saw themselves belonging to a subculture. And by 2012, GoPro was selling over 2 million cameras a year and getting millions of views on YouTube.
In 2014 they did an IPO, but the party was over only a year later.
There are many reasons behind their sudden and permanent fall, but a big one is trying - but failing - to expand out of their primary customer base.
Arguably, by 2015 anyone who needed a GoPro already had one. Their new product launches, from drones to smaller cameras, had failed, and competitors had caught up.
That doesn’t make GoPro a failure. Far from it.
They’re still worth over 5 billion USD today. But it’s been a no-growth company since its IPO seven years ago.
People who’ve already bought from you once are essential for your business.
Just not as essential as you think.
Retention rates are never 100%. In most service industries, 3% to 5% of customers defect every year, and the defection rate is as high as 60% among new car buyers.
People move on, their needs change, and your competitors win every once in a while.
And long-term customer contracts almost always come at preferential prices and other perks, further chipping away at your bottom line.
Retaining more of your current customers is vital for your survival, but that’s not the best way to grow your business.