Can customer service deliver a higher ROI than marketing?

One of the most fascinating side effects of “Engagement Marketing” is that customer relationships are once more being valued. Does this spell the end for bad customer service?

A recent report from Adobe revealed that online retailers spend 78% of their marketing budget on search and display advertising, while around 41% of their revenue comes from existing customers, who make up just 8% of their website visitors. As a result, European retailers have to recruit seven new customers to equal the repeat purchase value of a single existing customer, while US retailers have to sign up five new customers.

Now, evidently recruiting new customers is expensive, so you wouldn’t necessarily expect the level of spending on communications that foster closer relationships with customers – such as social media – to be equal, but there does appear to be a disconnect. You can’t help wondering what would happen if the two figures were reversed and more was spent on actually keeping customers.

The continual thirst for new customers is gospel at most companies. We’ve all seen amazing deals tagged with the line “limited to new customers only” or seethed at the discounts offered to those prepared to “switch”, while any poor duffers who display brand loyalty are considered naive, drastically underserviced and milked for every penny, while it lasts.

At their annual G-Force conference in Barcelona last week, Tom Eggemeier, EVP Global Sales at Genesys, bemoaned this lack of foresight in boardrooms, citing budget spends on three main customer-facing activities as evidence. The global market for communications breaks down as:

  • $500 billion a year on marketing and advertising
  • $50 billion on CRM
  • $9 billion on customer service

In other words, companies are spending the equivalent of 2% of their marketing budget on actively maintaining relationships with existing customers, while they blow a figure equivalent to the annual GDP of South Africa on banner ads and PPC. Faced with the dire quality of customer service offered by many brands – 86% of us have stopped working with a company due to bad customer service – it suddenly all seems to add up.

Mark Turner, SVP EMEA at Genesys, summed the problem up succinctly: “Marketing might get you new customers, but if you’re not looking after the customer experience, what’s the point?” Indeed, it feels like the very fact that recruiting customers is deemed to be the hard bit is leading businesses to assume that, once you’ve signed up, your custom can be assured ever after. Everyone knows this is not the case.

What would happen if businesses worked as hard keeping customers as they do recruiting them?

The Adobe report is unequivocal in its estimations of the ROI that companies are missing out on by forgetting about the customer relationship: “We estimate that for each 1% of shoppers who return for a subsequent visit, overall revenue will increase by approximately 10%”. In other words, if online retailers invested in keeping another 10% of their existing customers happy enough to keep buying, they would double their revenue.

Surely, while we’re in the longest recession since the 1920’s, it’s a good time for companies to address the myth that advertising delivers a higher ROI than the combined efforts of customer service and CRM. In a world where effective customer service can deliver both customer satisfaction and profits, this outdated budget imbalance needs to be redressed.

UPDATE: I did a presentation on this topic at Digital Shoreditch that includes a lot of the insights and statistics behind this post. You can see that here.

18 thoughts on “Can customer service deliver a higher ROI than marketing?

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  2. Dan Thornton

    Personally, when I work with a company on their marketing, a large part of that involves improving their customer service and support.

    After all, Marketing is all about capturing customer insight, developing customer relationships and communicating with customers – and decent service and support enables all three areas to perform far better.

    So it’s safe to say I completely agree that the time and budget allocated to customer service and customer relationships should definitely be increased.

    Reply
      1. ivica

        Hire 5 new customer service staff and have half budget for their next ad campaign. :-) There’s no better advertisement then “word of mouth” recommendations.

        Reply
          1. Dan Thornton

            lol – I’ve had the pleasure of working with projecs with Ivica providing customer support…

            And I’d definitely recommend getting customer service staff resourced and trained adequately before investing in an advertising campaign. If you’re not pleasing your current clients, and can’t guarantee you’ll please new ones, then advertising is a very temporary uplift.

            Speaking as a business owner, I’m much happier with consistent slower growth which can be relied on more for planning the future and investing in the right areas.

  3. Martin Hill-Wilson

    Although the commercial logic stands out like a beacon, most organisations do not aggregate their spend in this way to show the imbalance. Doing so would reveal the utter stupidity of their investment decision.

    Instead a more base instinct is at play here. I’m sure the old adage that familiarity breeds contempt is the emotional undertone that drives this beahviour. We talk of winning a new customers. Once conquered, hunters have to go find new prey to stalk.

    Martin

    Reply
    1. Luke Brynley-Jones

      I’m sure you’re right, that there’s an element of ‘searching for new conquests’ here. I think the lack of cross-departmental analysis is crucial too – fuelled by internal competition for budgets and, dare I say it… power.

      Reply
  4. Nancy Arter

    Customer service is so important. Without it, even if you do acquire new customers by spending a lot on marketing and advertising (wow! the annual gdp of South Africa!), you won’t keep them. The net result is loss of business — any way you look at it.

    Reply
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