All Customers Are Polygamists and How Direct Marketers Can Understand Them
And, first of all, let me preface it by saying, when we use the word, 'retention,' I'm very, very, very picky about the terminology. I'm referring specifically and exclusively to a contractual setting. One where a company knows when the customer goes away. You know when they don't renew their contract, when they drop their subscription, when they raise their hand and say, 'I'm out of here! I'm taking my business someplace else.' I don't think that the word retention applies to a transactional, a non-contractual firm. Let's say, like an Amazon. As much as I admire a firm like Amazon, they have no idea how many customers they have … So I'm talking specifically about situations where people are facing opportunities to renew their ongoing relationship. So I'm very specific about that word retention.
And so what companies have observed, and … this goes back for decades in direct marketing, is that retention rates tend to increase for a group of customers that stay with the firm for a longer period of time. So if we acquire a group of customers and we say, 'What percent of them stay with us from year one to year two? And what percent of them stay with us from year two to year three and three to four?' And so on. We tend to see those retention rates increasing as the cohort of customers ages. A pretty common pattern. There are rarely exceptions to it. But the issue is, 'What's that mean? What's that tell us about the customers?
And if you ask pretty much any company on the planet, they'd say, 'This means, that as the customers have a longer relationship with us, they like us better. They're feeling more loyal.'
Does that make sense?
TM: It does.
PF: But it's not true.