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Let customer acquisition costs steer marketing, service plans

Customer acquisition and customer retention strategies start with people and marketing automation tools. How much you should invest in either area depends on a number of factors.

As companies become more reliant on marketing automation tools, budgets are being adjusted. But automating doesn't...

necessarily lower your customer acquisition costs, and marketing software investments must be balanced with service to ensure customer loyalty.

Some say companies should invest more in marketing and advertising than in customer service, but the ratio depends on who you ask. If it's Tara Kelly, CEO of Splice Software Inc., she'll tell you it's the service side that carries more weight.

"It's much less expensive to retain an existing customer than to acquire a new one," Kelly said, noting that only 65% of companies can successfully upsell or cross-sell to existing customers, while only 12% can do the same to new customers.

When customers have a first-hand interaction with her company, which specializes in data-driven, personalized communication, their experience is far more memorable and impactful than any marketing or advertising campaign, she said. And there is power in word-of-mouth and customer referrals; you can't market your way out of a bad reputation.

Customer acquisition costs vs. CLTV

Jeff Kupietzky, CEO of PowerInbox, an email platform company that makes messages interactive, also believes it's harder to attract customers than to retain the ones you already have. With that in mind, he suggests 75% of spending be allotted to service and 25% to marketing.

"If you have a great product and take care of your current clients, they will help you get new clients and lessen the need to spend on marketing and advertising," Kupietzky said.

The winner of the marketing and advertising vs. customer service investments debate isn't black and white, according to Karl Becker, president of The Carruthers Group, a sales consultancy firm based in Colorado. The scale moves up and down depending on a number of factors -- the two most important being customer acquisition costs and customer lifetime value (CLTV).

"If CLTV is low and acquisition cost is low, then the best ROI may be simply adding more new customers, even if some are leaving," Becker said.

As companies weigh budgetary spending for marketing and advertising versus customer service, Becker said the split should be dictated by the company and what it offers, its market position, and the competitive environment. Understanding CLTV and customer acquisition costs -- and possible industry and segment churn -- will help make that decision.

"If a CLTV and acquisition costs are high, both monetarily and in units of time with a long sales cycle, then service should have a bigger seat at the table," Becker said.

Customer churn calculation
How to calculate the cost of customer churn

When setting the budget, you should consider the length of the sales cycle, the close ratio and your own organization's churn.

"Ask yourself, what are the financial ramification of each decision and the value to the brand equity of being more proactive in service? Is there a strong word-of-mouth revenue channel?" Becker said.

Marketing automation considerations

Marketing automation tools provide positive benefits, like simplifying the delivery of email and enabling mass personalization of offers at a workable scale. Still, there's no substitute for one-on-one interaction, and the same goes for software automation in general, according to Kupietzky.

"There are obvious benefits to marketing automation tools," he said. "In my experience, the ROI from happy customers is much greater in terms of their recommendations and referrals of your product than investing in marketing to attract new customers."

While marketing automation tools may cut customer acquisition costs at Splice, Kelly said they're only as successful as their data allows. According to Salesforce's 2017 "State of Marketing Report," 67% of marketing leaders use a marketing automation platform.

"We are seeing more marketing automation, but we aren't seeing marketing budgets decrease," Kelly said. "These tools make your marketing automation better, smarter, more integrated, but they all come at a price."

At Splice, calls are automated, but use a real human voice in a tone that can change according to the situation. However, when the customer wants to speak to a human, they are immediately transferred to a live agent.

"What we do, and what automation should do, is change the onus of keeping the customer informed," she said.

We are seeing more marketing automation, but we aren't seeing marketing budgets decrease.
Tara KellyCEO, Splice Software

That data provided by customers has to live inside your customer communications management or CRM, she said. That way, the products offered by those marketing automation systems don't feel impersonal.

"The emerging user interface of voice -- Alexa Skills and Google Actions, for example -- may be capturing information from your customer, but where is it being stored?" Kelly said.

For Becker, the core technology of automation and lead scoring to gauge the interest level of leads can also be applied to service. If a customer utilizes digital communications for service or support, automation and lead scoring could save time and improve customer service resource allocation and, in theory, help the company reach the most valuable or most in-need customer faster.

"If automation can be married to scoring logic, the combination can identify the highest value customers that are the most in-need of personalized service, creating value for the customer by streamlining service with high-value communications to the most valuable customers while improving resource utilization," Becker said.

B2B vs. B2C

Whether using B2B or B2C, any customer experiencing issues with mission-critical technology or essential products and services will expect immediate resolutions. Action is tied to value received or, in some cases, not received. The higher the value deficiency, the higher the priority and more immediate the action to rectify it should be, Becker said.

If your product creates low value, then service should be lower priority. For example, if your rarely used landline phone connection breaks, you're less likely to get it fixed quickly. The amount of time you are willing to invest to fix it may be minimal -- you might even just call to cancel the line altogether.

"But if your internet is out, you are going to do whatever you can to get your internet up and running ASAP," Becker said. "You might be willing to wait an hour on the phone just to get to talk to someone and get a resolution.

The customer lifecycle starts with an inquiry and continues well beyond the initial sale.
Companies must nurture potential customers throughout the process, from their first inquiry through the end of the service cycle and beyond.

While this is a B2C example, its severity is compounded in a B2B environment because the substitute solution of a mobile phone is not viable for a large company that relies on its phone system, he added.

B2B customers can be just as demanding because price points are usually higher and their need for great results more critical, according to Kelly.

"Not only is the vendor's reputation on the line, but buyers often have to answer to a higher authority, so their own professional reputation may also be at stake," she said. They're consumers, too, so they have the expectations of both sides of the buying experience.

When using Splice's Dialog Suite, insurance companies keep their customers updated throughout the claims process. So, in the event of an accident, they know what's going on and don't end up feeling insecure in an already stressful time.

"We do the same for banks and mortgage companies, keeping homebuyers informed," Kelly said. But if someone is managing a fleet of cars or buying commercial properties at work, they probably don't need or want that kind of constant updating.

But what companies need to remember is that whatever speed and ease of service people get used to in their personal lives becomes the expectation in their professional lives.

"Now that people can get a car insurance quote in 15 minutes, they expect the same from commercial coverage -- upending the norms for RFPs [request for proposals] and brokerage processes," Kelly said.

And at the end of the marketing and advertising vs. service debate, however companies divvy up budgets, it's important to keep one thing in mind: the customers. Kelly suggests companies invest in affordable Net Promoter Score surveys to gain insights into how to make the split.

"The key is to actually implement or take some action with the results," she said. "Your score is a benchmark and will help to pinpoint problem areas that you need to invest in."

If companies are on a limited budget, they should go to their existing customer base to help sell to new prospects.

"That means investing more of your budget in tools and talent that help the frontline provide great service to existing accounts," Kupietzky said. "This will be a better investment than just marketing spend to attract new clients. We all know how important reviews, recommendations and referrals are to us in making decisions as consumers."

And they're equally valuable for business buyers, especially in the era of social media; a poor service experience or bad review can have a ripple effect that can be tough to overcome, no matter how much you invest in advertising.

This was last published in June 2018

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