Dealing with the Dilemma: Acquisition or Retention?
A typical scenario for customers when it comes to interacting with an insurance company is when they first go to purchase insurance from the organization’s website. Most times the experience is great. The website is intuitive and the process to apply for the insurance is simple, straightforward and welcoming. Unfortunately, once the customer goes through the approval phase and gets approved, the experience often deteriorates quickly.
This is a classic example of how insurance companies (and even businesses in other industries) unintentionally drop the ball. Complex processes such as silos in the organization can get in the way causing retention to take longer. They have to get buy-in from many stakeholders, get executive sponsorship for initiatives and reallocate budget from other areas. The challenge then becomes how to demonstrate the value of retaining customers and investing in the customer experience, when most of the money generating accounts bring in revenues, and how to shift to provide smaller accounts the same attention when they don’t generate as much profit for insurers?
What’s even more intriguing is that insurers continue to follow this path even though there are an overwhelming number of statistics that confirm that investing in customer retention can have a huge, positive impact on the bottom line of a business.
- The probability of selling to an existing customer is 60-70%. The probability of selling to a new prospect is 5-20% (Marketing Metrics)
- Repeat customers spend 33% more compared to new customers (Laura Lake)
- A 2% increase in customer retention has the same effect as decreasing costs by 10% (Emmet and Mark Murphy)
- A 10% increase in customer retention levels results in a 30% increase in the value of a company (Bain Co)
The above bullet points are compelling to say the least. Yet, despite this, in research conducted by eMarketer, 62.2% of companies admitted they concentrate on customer acquisition with only 20.6% concentrating on customer retention.
This point seems even more irrational when you consider that it six to seven times more expensive to acquire new customers than it is to keep a current one. (White House Office of Consumer Affairs).
Why the focus on acquisition?
There are a couple of reasons why so many insurers might put more emphasis on acquisition than retention. First, it’s easier to acquire customers than to retain them. Retaining customers is a lot more work. Second, and probably more importantly, is growth. The fastest way to grow, and the quickest way to boost short-term revenue, is to win more customers. As well, compared to retention, it’s a lot easier to measure the ROI of acquiring new customers, something CEOs really appreciate when they have to deliver quarterly reports to shareholders.
So, what’s the problem with being acquisition-centric?
If insurers make little or no effort to retain customers after they have made their initial purchase, these customers will become frustrated and move on, thus setting in motion the unending cycle of acquire, churn, acquire, churn, etc.
What does this have to do with acquisition?
Acquisition costs get more expensive as retention numbers decline. Companies must acquire more customers to fill that leaky bucket. The more customers an insurer loses, the more their acquisition costs increase.
The right decision starts with your business goal
Want to know whether your insurance organization should focus more on acquisition or retention? Ask yourself these two questions:
- Is your business goal profitability, but is your retention less than 100%?
Then ease on investing in the Buy stages of the customer lifecycle and invest in retention.
- Is your business goal growth?
Then invest more in the Buy stages.
How investing in retention boosts profitability
When an insurer’s retention levels are low it can have a negative impact on profitability. As mentioned above, organizations must acquire more customers to fill that leaky bucket, and acquiring new customers cost six to seven times more than retaining existing customers.
By focusing on delivering the best customer experience and retaining more customers, acquisition costs will go down, plus additional customers will be acquired through word-of-mouth referrals from happy existing customers.
What happens when you decide to focus on retention?
Once you shift your focus towards retention you will start to think differently. The content and messaging you produce will no longer be transactional in theme. No longer will it be about selling. Instead it will be all about building a relationship with your existing customers. The “moment of truth” for insureds is the claim experience – they may never have a claim if they are lucky. So, the insurer has the opportunity to proactively build that relationship over time (or rather, during the good times) so when things do go bad, the carrier and customer have built a foundation of trust, respect and accountability.
Building that relationship will take some time and effort—just like developing personal relationships do.
To do this you will need to take the time to understand who your customers are, identify their needs and pain points along the entire customer journey and then talk about how your organization’s products and services can help solve those problems.
Be prepared to invest in CCM technology
To be truly effective, your retention program must be able to engage customers at the right time with the right messaging. The outdated legacy technology of yesterday does not allow you to know the customer at every touchpoint of the customer journey. New digital technology platforms do.
Commonly referred to as Customer Communication Management (CCM) systems, these platforms will enable you to message, measure and track ROI along the entire customer lifecycle. This will allow your organization to provide the timely, personalized, relevant communications that existing customers are expecting and demanding from insurers. In other words, the kind of communications that will boost retention.
Discover more key insights into the Acquisition vs. Retention debate. Download the whitepaper “Acquisition vs. Retention: Where Should Brands Focus?” today.