Customers Don’t Grow on Trees

The latest issue of Fast Company has a great article on customer retention. Proposing a new metric – Return on Customer – the article acknowledges that “capital isn’t necessarily a company’s scarcest resource; that customers don’t, after all, grow on trees.”

To maximize Return on Customer, a company needs to optimize the mix of short-term profit and long-term value created. But it’s difficult for most firms to think like this because they’re so focused on acquiring new customers — any new customers — and protecting quarterly revenues. (An example: A video store refused to accept the return of a damaged DVD from a friend of ours, a longtime customer, without a receipt — even though its own electronic records confirmed her purchase. Result: It saved the cash it would have had to refund on that purchase but lost perhaps a hundred times that amount in customer lifetime value.)

The antidote, of course, is to treat different customers differently. Businesses of all sizes and shapes are now technologically capable of doing this, and some are brilliant at it.