All Customers Are Polygamists and How Direct Marketers Can Understand Them
PF: And I've never seen evidence where it is true. And this is the heretical part of it. See, people draw the inference that, 'Hey, look. As this group of customers stays with us and their retention rate increases, that must mean that each one of those customers is becoming more loyal over time.
But that's not what's really going on. What's really going on is there's this shakeout process occurring that, when we acquire a bunch of customers, each one of them has a different propensity to stay with us. Some love us. Some don't. And what happens over time is we shake out the less loyal ones, leaving us with a different mix of customers, who tend to be the more loyal ones, right? It doesn't mean that the customers, that each individual, is changing over time. Just that the mix that we have is changing over time.
So the analogy that I like to use, and it's a surprisingly good one, is that each customer's given a coin and they flip a coin every time they have a chance to renew their contract. 'Heads, I stick around. Tails, I leave.' But everyone's carrying a different coin, some are more headsey, more inertial, more loyal; some are more tailsey, more flighty, more ephemeral. The coins don't chance over time. It's just that everyone flips their coin; the ones who are more likely to get tails leave and that leaves us with a more headsey inertial group.
So that story of how just the customer group shakes itself out over time turns out to be somewhat counterintuitive. It's easier to tell the story about how each customer becomes more loyal, instead of this shakeout process. But I've looked at the data from many different companies in many different ways and found that, pretty much, 100 times out of 100 it's the shakeout story that dominates the individuals becoming more loyal over time.