Apologies in advance if this blog seems a little esoteric – a contribution to an obscure and irrelevant debate about which you know nothing and care less. (Sounds great, doesn’t it?)
You know Ned Cazalet. Extremely punchy bloke, scourge of the industry. Never misses an opportunity to stand up on a platform and tell life companies, in public, how completely rubbish and useless they are – and then, somehow, secures huge consultancy fees for telling them how useless and rubbish they are in private too.
I have the sense that for the last few years Ned has either been slightly resting on his laurels, or alternatively and more charitably he’s found his big theme and he’s sticking to it. Either way, he misses no opportunity specifically to say that the very worst of the industry’s uselessness and rubbishosity is the way that life companies’ new business is made up very largely of churn – customers who’ve been switched, usually by IFAs, from policies with company A to similar but often slightly cheaper policies with companies B, c and D.
This drives Ned bonkers. The way he sees it, what happens in transactions like this is that the intermediary trousers a lot of commission, company A loses a customer just when he or she was about to become profitable and company B, or C, or D, spends a shedload of money to acquire a customer who, a short way down the track, will probably be churned into company E, or F, or G, or even back to A again, just before he or she was going to become profitable there too.
When Ned is on the rampage about all this, he speaks so fast that it’s hard to know whether one agrees with him or not. On reflection, I’d certainly agree to some extent: there’s certainly something wrong with companies’ business models if they structure their revenues so that customers typically come into profit in year 5, say, but typically take their business elsewhere in year 2 or 3.
But on the main point – that churn is a terrible, indefensible thing and the only new business worth talking about is genuinely new new business – I don’t agree at all.
On the contrary, as a marketer I’m very clear that for the large majority of organisations in the large majority of markets, the normal priority is to “churn” – that is, to capture customers from competitors rather than recruit new new customers to the product or service.
This is usually for one of two reasons. Often, the market is saturated and there’s little or no new new business to be had – for example, utilities, mobile phones, motor insurance. But even more often, it’s just incredibly much easier, more effective and more cost-effective to target consumers who already have a level of enthusiasm for your product or service, and are reflecting that enthusiasm by buying it from one of your competitors, rather than try to expand the market by recruiting consumers who are currently showing no enthusiasm whatever.
I’ve worked in the past, for example, on Scotch whisky marketing. I can’t remember what proportion of the UK population drinks Scotch, but it’s not a lot – say about 10% of people drink very nearly 100% of it.
The trouble is, the other 90% really don’t like it. The occasional brave campaign trying to persuade them that they do like it really invariably fails. If you want to increase your brand’s sales, the way to do it is to increase your market share (i.e. win customers from competitors), not grow the market.
Historically, the same has been true of life assurance, the sector that Ned was slagging off the last time I heard him speak. Persuading customers to switch to your brand, especially with a) the influence of an intermediary, and b) a lower price, isn’t difficult. Recruiting cold new prospects to the market has been really hard (and, in customer acquisition, “hard” is synonymous with “expensive”).
I think, as I’ve blogged on previous occasions, that this balance may be about to change. New online D2C execution-only services may become so accessible and engaging that new new customers feel much happier than ever before to approach the industry.
If that’s right, then the balance between “churn” and new new business may start to change in favour of the latter. On the whole, that’ll be a good thing. But until those new businesses and new technologies exist, I can’t see why it’s wrong to focus on winning business from competitors. Provided that consumers are getting a better deal (which, almost always, they are), I can’t see what the fast-talking Mr Cazalet is getting so worked up about.