From behavioural science expert Steve Martin
I remember writing an article for a marketing magazine, in 2005, on the subject of customer retention. If memory serves me right I started the piece, as most do on this subject, by trumpeting that much quoted statistic that it costs a business, on average, about five times more to win a new customer as it does to retain an existing one.
Less than a decade later and I am being asked to write about the same topic again. Given that a lot has changed in that time—in 2005 no-one knew what a selfie was, let alone how to twerk or what the Retail Distribution Review would mean for IFAs—I thought it would be useful to brush up on the latest research. So I fired-up Google, double-clicked the latest report on the subject (authored by the respected Chartered Institute of Marketing) and got the answer.
Oh, how things have changed!
A new customer can now be yours for as little as three times the cost of retaining a current one. Or, depending on what you factor in to your calculations…as much as 30!
I’m not sure what I find more alarming. The fact that, despite the internet giving us near instant access to information about the products and services that people like us are using or how we can save money simply by clicking a link on a comparison website, the cost of winning a new customer can still be three times more than retaining existing ones. Or that the people who study this stuff really don’t have a clue how expensive it is to win new customers.
For financial advisers the question of how much it costs to win a new customer is largely academic and one that probably doesn’t matter all that much. What’s far more important is to realise that, despite the experts’ widely varying estimates, a truism remains. Retaining an existing and profitable customer is always going to be a whole lot easier (and cheaper) than winning a new one. The question, of course, is how can an adviser do this effectively?
Call me biased, but as someone who works in the field of behavioural science, I think that recent insights from the persuasion and decision sciences can help. Here are two such insights that I consider to be especially relevant when it comes to retaining those sandwich generation customers.
1. Focus on commitments, not progress!
Those readers who have downloaded any of Aviva’s New Thinking material will be familiar with the MINDSPACE model. The C in MINDSPACE stands for Commitment – the idea that people generally live up to commitments they have made actively and publicly.
Given that an important step to retaining sandwich generation customers will be the adviser reminding their customers of the important progress they are making towards their financial goals, it’s worth asking how to do this most effectively. A clear answer emerges. Researchers at the University of Chicago have found that highlighting the progress people have made towards their goals can actually have a regressive effect. Why? Because when people pay attention to the progress they have made towards a goal that progress can sometimes act as a license for them to take their foot off the gas. In much the same way as a trip to the gym provides a license for us to have that tasty muffin with our morning coffee, highlighting progress towards a goal can have the same effect.
This insight leads to a small change that advisers could make that can lead to a big difference in securing a customer’s continued commitment and, ultimately, their custom. During a financial review the adviser could avoid talking about the progress a client has made towards their financial goals and instead frame their position as a sign of their continued commitment to achieving their financial goals.
2. Pay attention to how client conversations end
Advisers know that clients who report high levels of satisfaction and experience a great service are more likely to stay long-term clients than those who don’t. What is less well known, however, is what people pay attention to when deciding how satisfied they are with the service they receive.
Imagine you have just been asked about your memory of a night out in an extremely pleasant restaurant, where you enjoyed fine wines and great company but at the end of the evening the waiter was rude to you. If you are like most people your response will be influenced by two things; the peak moment of pleasure or pain during the experience (lobster bisque in the case of pleasure, or the waiter in the case of pain) and the last thing that happens (also the waiter being rude). It turns out that everything else in the experience will largely be forgotten. Behavioural scientists call this the Peak-End effect. Put simply our memories of experiences are etched in terms of extremity and recency. It’s why pop stars play their most popular songs at the end of their concert; their fans end up having better memories of the experience.
Advisers can take a leaf from the same book by ensuring that their client conversations end on a high note by perhaps giving some especially good news at the end, or providing a useful insight or valuable piece of information that will linger in their client’s memory. Whatever that insight or good news may be, ensuring you end on a high note can increase the likelihood they’ll come back for more.
And on the subject of more…
Advisers can find out about other ways to use behavioural science to have more effective conversations with their Sandwich Generation clients, plus get access to helpful videos and downloads, at Aviva's sandwich generation hub.