Theory & Practice

Introducing Wiemer Snijders

Friends,

I hope that all is well with you and yours.

For yours truly, the past week has been one of e-commerce analysis and Share of Search; the former as it is where my focus currently lies (more on that to come), the latter because my partner in said analysis, James Hankins, flew in to Stockholm to give a couple of talks on his creation. Without so much as a word of hyperbole, James is one of the smartest strategists anywhere on the planet. If you ever get the opportunity to see him present, prioritize it.

Now onto the topic of the day.

Over the last few weeks, as you all will know, we have discussed the many nuances of acquisition vs retention, covering subjects such as acquisition costs, customer lifetime values, loyalty and all the various strategic implications. Today, I thought we would round it off with an interview with one of the heavyweights in the field: Wiemer Snijders.

For the few who do not know who you are, could you provide a bit of insight into the makings of the one and only Wiemer Snijders?

I am one of the partners at The Commercial Works, a small (marketers would brand it ‘boutique’) consulting firm, with people in the UK, Czech Republic, Sweden, Australia and the Netherlands. We are about profitable volume growth. Our focus is on influencing customer and/or consumer choice and making sure our clients are paid properly for the good thing they do. Our work consists of Capability Building Programmes, Research and Advisory/Implementation. Separately, I am the editor and co-author of Eat Your Greens and Mange Ta Soupe. I regularly speak - either as a keynote speaker or lecturer - on the topic of marketing science, and occasionally put some of that thinking in writing for outlets such as WARC.

The overarching theme on Strategy in Praxis of late has been acquisition and retention. What do you think is the most common mistake strategists make when attempting to balance the two?

Determining the right balance. Often service companies will have very lofty or unrealistic ambitions when it comes to retention - or their ability to influence it. I think it is partially because these type of companies build up a picture of their clients and then spend a lot of resources on making them stay. This is, of course, often driven by the idea that retaining existing customers is a great (and more cost-effective) way to grow the brand; some business cases are built on Customer Lifetime Value measures that ‘dictate’ that customers need to stay with the company for several years before they become profitable. So, we need to be really good at keeping them in!

Unfortunately, our ability to influence who will stay or go is rather limited. Anyone who has cared to study buyer behavior will know that retention rates typically follow a well-known pattern, where big brands will have (somewhat) higher retention rates compared to small(er) brands, i.e., the well established Double Jeopardy pattern that you, I believe, have also discussed in your newsletter. Most growth will come from acquisition, and our retention rates will improve accordingly. But we typically don’t see small brands massively improve on metrics such as retention without any substantial increases in acquisition. Therefore, the balance should lie more with acquisition than retention.

There is a common suggestion in strategy that one should focus on the most profitable customers – the ones who provide most of the revenue and even more of the profits. What is your take on that? And do you think it varies depending on the lifecycle stage the company is in?

Most brands will have a few very profitable customers. But the majority of any brand’s customer base will be made up of large numbers of buyers who don’t spend very much with you. This is perfectly normal. Whether you are a small or a big brand, most of your customers will do a little, and a few with do a lot. Yet most brand managers and business cases are built on turning existing customers into more profitable ones (e.g., by cross selling or increasing share of wallet). I know some financial service companies have essentially traded away the value for simple, single products such as checking accounts, and built business cases on the premise they’ll be able to attract a very particular, profitable type of customer for more complex services (such as financial planning) - or at least have people buy more products from them.

However, most of your customers will be those that do very little (i.e., only buy one product from you), and most brands will get their ‘fair share’ of the very profitable ones (who are the minority anyway). Here, you will yet again find a Double Jeopardy pattern.

If one doesn’t appreciate that this is how the world works, you end up with unrealistic business cases and making no profit at all.

Lifecycle stage will influence some of this to a certain extent. We know big brands tend to attract the lightest of buyers - those who don’t use the category very often - whereas smaller, new brands will likely attract more of the heavier category users. So, a small savings bank will have a larger proportion of people with a wider repertoire of banks (i.e., these people will have saving accounts with multiple banks). The repertoire for big banks will typically be lower (more people will just have one savings account). A new brand in this market may choose to try and find the heavier users of the category to persuade them to try out their new offering. An established brand will likely be better served by developing a strategy that is more focused on reaching and nudging the lightest of buyers.

What data would you look for, if you were a strategist or consultant who had just been employed to boost the growth curve of a company that had, so to speak, levelled out? What metrics would be most important?

Number of customers that bought the product or service (over a given period, this would depend on the category) would be the metric I’d consider to be the most important. And then metrics that will tell me to what extent the brand is well-known, easy to buy, and thought worth it (something originally coined by the late Andrew Ehrenberg).

In particularly marketing, many (if not most) acquisition conversations tend to up in advertising, while many (if not most) retention discussions tend to end up in CRM. What, in your view, are the most important growth and retention levers (generally speaking, to the degree that is possible)?

We use a diagnostic tool which - in our view - addresses important levers (that I alluded to earlier) that will help a business grow/influence buying behavior. It rests on three pillars: being well-known, being easy to buy and being thought worth it.

Being well known is all about reaching the right and sufficient amounts of people, saying the right things and making sure it’s clear who’s doing the talking. Being easy to buy is about having a suitable range of products and services, the appropriate channels through which you sell, and the visibility in those channels. Value - or being thought worth it - is defined by the choices you make with respect to the performance of your offering, its price point(s) and what you do in the area of promotions. There are undoubtedly more levers you can pull, but we feel these are the main ones a manager can measure, control and influence to a certain extent.

We have recently had reason to refer to the work of the Ehrenberg-Bass Institute. They, of course, became (more) popularly known through Byron Sharp’s seminal book How Brands Grow. But growth and profitability do not always go hand in hand. How do you balance penetration and profits?

We’re about profitable volume growth. We believe it will be hard to build a sustainable business where one simply ‘buys' market share or penetration, hoping the advantages of scale will kick in at some point, without worrying about profits. Your work with James Hankins in e-commerce is a perfect example of an industry where many companies seem to operate under that assumption. If you have the luxury of being able to fund your growth without the pressure of doing so profitably, great, as a founder you might well end up very rich. But I’d think twice before venturing down that path if your aim is to be around for many years.

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And there we have it - our final notes on acquisition and retention for the time being, kindly provided by one of the best at it. We are sure to find reason to come back to such an evergreen topic, of course, but for now, we will move on.

Next week, we are going to discuss something which is absolutely crucial to understand in order to improve the odds of a strategy actually being executed: organizational (and individual) incentive structures.

Until then, have the loveliest of weekends.

Onwards and upwards,
JP