As economic conditions change, so must business strategies. Pendula CEO Alex Colvin is looking forward to a new, customer focused business world.

Historically low interest rates and plentiful investment capital created new and exciting blitzscaling and growth-at-any-cost business models. If you wanted to convince new investors to buy-in, you started with how fast you were growing your customer base.

We’ve now entered a new era.

When customer budgets are squeezed, they get smarter about spending. The most visible spending is often the first target for downsizing – food, entertainment, tech and telcos. Investors in these areas are already seeing business leaders respond to anticipated drops in demand with layoffs and other cost-cutting measures of their own.

What comes next is a shift from acquiring new customers to retaining their current user bases and encouraging loyalty. This is called ‘churn’ in marketing industry vernacular, but it’s a word investors are going to become far more sensitive to in coming months.

This is because it’s simply cheaper to keep new customers than acquiring a new one. A lot cheaper: acquiring a new customer can cost five to 25 times more than retaining an old one, depending on your industry and location.

Investors are largely unaware that an increase in customer retention by 5% can lead to a company’s profits growing by 25% to around 95%.

Despite the sugar-hit that a new customer brings to the quarterly report, returning customers can spend up to 67% more over time than first-time customers, particularly if those first-time customers are there to take advantage of a promotion and then leave shortly after.

Canary in the coalmine

Australia’s telecommunications sector is a canary in the coalmine for this shift – it’s a big, visible bill each month, and the Telco sector is one of the fastest adopters of data-driven marketing strategies.

Our two big telco providers have previously focussed on acquiring new customers faster than others left. This has created a sector where consumers are willing to rapidly and ruthlessly switch providers if offers and quality of service aren’t adapting to their needs.

To make matters more complicated, challenger brands (e.g. Vodafone and others that utilise the existing Telstra and Optus networks) have been implementing innovative products and customer service strategies for years.

As a result, they are often ahead of the curve compared to bigger telcos who’ve traditionally been able to heavily rely on brand equity.

For example, these brands were quick to implement complimentary bonus data, and produced marketing campaigns that encouraged customers to “stay safe and stay connected” during the pandemic.

This latched onto the insight that phones were going to be used more than normal in lieu of physical socialising, and that purse strings were going to be tightened.

We’re going to need similar creativity and nimbleness from enterprises (not just in telco) to keep their customers and build loyalty, if they are to succeed in a tougher economy.

To do that will require them to invest in areas investors typically saw as cost-centres; customer service and retention teams, automated marketing technology that can provide deals to existing customers before they threaten to switch providers and so on.

In a churn-focused economy, the ‘old’ business priorities become new again. We’ll see enterprises compete once more on quality of customer service, low running costs and dependable profits.

Business leaders will be looking to prove to risk-averse investors that they truly understand their customers, and are implementing strategies to reduce churn. The new era of customer loyalty is upon us – but it’s one that should feel quite familiar.

This article was developed in collaboration with Pendula, a Stockhead advertiser at the time of publishing.

This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.