Anyone who has worked in marketing for even a few weeks knows the following 3 “written in stone” dictums:
1. It costs less to retain customers than it does to acquire new ones.
2. Brand growth comes from gaining more loyal customers.
3. Differentiation is the cornerstone of any marketing strategy — differentiate or die.
These concepts are the brick and mortar foundation of most marketing plans and to suggest changing them would be unacceptable in most marketing circles, right?
But … what if these 3 longstanding “laws” of marketing turned out to be a house of cards? What if they proved to be just untested assumptions? What would happen if robust empirical data contradicted these 3 (and numerous other) Marketing Gospel Givens?
Let’s take #1 above for starters. The source of this “law” traces back to 1990 when the Harvard Business Review published, “Zero Defections: Quality Comes to Services,” by Frederick F. Reichheld and W. Earl Sasser Jr. It decreed that zero defect manufacturing was transforming the world of making things and would also transform the world of selling things, i.e., far fewer customer “defections” (brand switching). Their powerful claim was that companies could boost profits by nearly 100% by simply retaining just 5% more of their customers!
Let’s take a different view of this typically unchallenged customer retention vs customer acquisition thing. Reichheld and Sasser’s apparently modest 5% drop in customer defection is actually a drop of five percentage points, from 10% to 5%, which is a 50% decrease, or a halving of customer defection. Um, not quite as easy as originally thought, eh? So perhaps there’s maybe some empirical data to back up Reichheld and Sasser’s claim? Nope. It’s just a myth. Also turns out this alleged reduction in customer defection is assumed to be achieved at zero cost. Ask yourself, in the real world, how many companies get anywhere close to reducing customer defections by 50% for no cost? Yeah exactly, like none.
Regarding #2, on loyalty, see Alleblog 1/5/17, YOU'RE NOT A "LOVE BRAND." YOU'RE A HABIT.
Okay, but what about (#3) differentiation? Surely it can’t be argued that this is largely irrelevant? Buyers certainly do need to perceive a meaningful difference to regularly buy a brand … yes? The answer, based on mountains of research data [See: Ehrenberg-Bass Institute for Marketing Science] is actually a resounding no. From soft drinks to personal computers, although differentiation exists, it is weak, and far less important than we’ve assumed. Brands within a category do not vary markedly in their degree of differentiation, perceived or otherwise.
Just because marketers like to say these things over and over again, doesn’t make them true. Is your marketing program “myth-ing” anything?