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Are your customers dead? Or is it just their loyalty?
People are switching financial products more frequently and in ever greater numbers. As Tim Marshall of The Shareholder Partnership points out, it¥s never been more important to remind dormant customers what you have to offer.

No matter what business you¥re in, the same rule of thumb applies to you: ²Acquiring a new customer costs seven times more than retaining an old one.Ó It¥s a ratio that has been challenged in recent years - surveys from various industries show it could actually be 10:1 or higher. But the point it illustrates remains the same: only a fool goes after new customers before he¥s optimised his relationships with old ones.

This is especially true in financial services, where new customer acquisition costs are typically very high - a recent estimate from the US put the cost per customer at around $350 (£196). No wonder the industry uses more direct marketing than any other: in the UK, the total amount spent on direct marketing over a 12-month period in 2003-04 was around £13.61bn, and around 30% of that came from companies offering products such as pensions, insurance policies and savings accounts.

In spite of such efforts, consumer promiscuity has continued to grow, fuelled by the increasing amount of comparative information available over the Internet. Indeed, in 2005, a price-comparison website called Moneysupermarket.com was named the fourth fastest-growing private company in the UK by Real Business magazine (based on a compound annual growth rate of around 183% in the four years to 2004). The site makes most of its £60m sales by introducing visitors to financial service providers in return for commissions.

Some providers have responded to this trend by redoubling their efforts on retention. The building society Nationwide, for example, has recently used a high-profile TV advertising campaign to pledge that its special offers will never apply solely to ²Brand new customers only!Ó Nevertheless, most companies still spend far more trying to win new customers than to reactivate old ones. In other words, they act like hunters rather than farmers, and waste a lot of energy as a result.

A recent survey by Loyalty Magic, a leading Australian producer of software for loyalty schemes and customer data-mining, suggested that only 3% of companies have a ²lost customerÓ reactivation programme. This in spite of the fact that a 5% reduction in lost customers can increase profits by up to 75% (the survey suggested existing customers tend to be less price-sensitive than new ones, and require less sales time, administration and advertising). Perhaps its most shocking finding was that ²68% of consumers change their place of business for little or no reason.Ó In this context, simply reinforcing what you do is a worthwhile exercise, whether or not you manage to sell additional products or services.

Of course, if you¥re marketing to old customers then you must ensure you don¥t alienate them, and that you don¥t contravene the latest data protection laws. In the UK, when a company takes a person¥s address details for the first time, they must give that person the opportunity to opt-out of any further direct marketing by conventional methods such as the post or the telephone. Following a change in the law in December 2003, they must also agree not to use technologies such as e-mail and text-messaging for direct marketing, unless someone has provided a conscious ²opt-inÓ to these types of approach - say, by ticking a checkbox on a web-based form.

Ironically, gone-away customers therefore represent a great marketing opportunity. By tracking them down and resuming contact, you can remind them of your value and, at the same time, ask them whether their direct marketing preferences have changed. Anecdotal evidence from postal service providers and marketers suggests that, when you do, around 10% will permit you to send through new material on products and services that may be of interest. (In e-mail marketing circles, this is an extended version of the so-called ²double opt-inÓ tactic, under which an e-mail used to confirm registration to a company website includes a weblink that exposes the customer to another opt-in checkbox, doubling the company¥s chances of gaining approval for further pitches.)

At The Shareholder Partnership, we regularly trace our clients¥ customers to inform them of entitlements related to financial products they may have forgotten. We¥re not allowed to use these calls for marketing purposes, but even so we find they generate tremendous good will. As the battle for customer retention continues to grow more bloody, such opportunities for relationship-building, even when they involve small proportions of a customer base, look set to become disproportionately valuable.