January 2004

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article was first published in the Eastern Daily Press' 'The Business' on 6 January 2004</I></div> <bR> <div> <B>Corporate myopia: the modern business disease</B></div> <bR> <div> When preparing recently for a business slot on local radio, I was struck by several news items that all seemed to me to have a common, if not immediately evident, theme.  One reported that a well-known provider of gas and electricity had put up their prices only weeks after their major regional competitor had done the same.  Hardly newsworthy, I know, but only a few months earlier, they had been enticing customers of the regional supplier to switch their contracts, warning of price rises to come (from the regional competitor, of course).</div> <bR> <div> On the same day, a government-commissioned report highlighted the overwhelming preference of home-owners in the UK to borrow money from mortgage lenders who offer discounted interest rates for the first couple of years, but which revert to the current variable rate for the remainder of the term.  This in preference to loans at very slightly higher rates, but fixed for the full 25-year term of the mortgage.  </div> <bR> <div> And, the day before this, I had received yet another unsolicited phone call promising me big savings for switching my telephone to a new provider, as well as two pieces of junk mail offering 0% APR for six months for transferring one credit card debt to another card.</div> <bR> <div> We seem to be a country obsessed with short-term deals.  Perhaps it's one of the fall-outs of the `want it now' generation, or maybe it's just a case of corporate myopia.  Too many companies today seem to have lost sight of one of the most fundamental principles of business - it costs six or seven times <U>less</U> to sell to an existing customer than it does to find a new one.  And yet, more and more businesses seem content to attract new customers with short-term deals only to see them leave just as fast as they arrived, lured by the next offer.</div> <bR> <div> There are two keys to long-term profitable marketing that hold true in any business:  to minimise the <U>acquisition cost</U> of every new customer and to maximise their <U>lifetime value</U>.  Knowing what it costs to gain a new customer is (or should be) important to any business owner, but particularly to one that uses direct marketing, advertising or promotions to market their products or services. Then you know what value of sales at average margin you have to make to that new customer before they begin to pay off your investment in them.  Anyone who is enticed by a promotional deal and then leaves soon thereafter to pursue a better one has almost certainly cost you money.</div> <bR> <div> So who benefits from these short-sighted deals?  Well…. in the short-term….. the customer might.  And the business does - at least in terms of numbers of new customers.  But both should remember the adage that if something seems too good to be true…. it usually is.  Fickle customers departing quickly leave the business with acquisition costs un-repaid and no loyal customer from whom they can realise profits in the future.   The existing customers usually end up subsidising the promotional deals through higher prices.  And the new customers often get second-class service that is commensurate with the price they were attracted by in the first place.  </div> <bR> <div> There really is very little new under the Sun.  Remember, you almost always get what you paid for.</div> <bR> </td> <td valign="top" width=180 BGCOLOR="#CC3333" TEXT="#080000"> <bR> </td> </tr></table></body>