May 29, 2019

Reacting To The Death Spiral

So it's becoming hard to acquire new customers, and the customers you are acquiring are EXPENSIVE!

What is the natural reaction of a company stuck in a Death Spiral? You already know the answer, don't you?
  • Cut back on marketing / customer acquisition spend in an effort to "fix the profit and loss statement".
What happens when you cut back on marketing spend?
  • You acquire even fewer new customers.
  • This causes you to miss sales goals by an even wider margin.
What happens when you become desperate?
  • You discount ... deeper and deeper.
What happens if you discount more and more?
  • You pollute the customer file with customers who only love discounts.
  • You generate less profit.
What happens when you generate less profit?
  • More draconian cuts.
  • A focus on "BEST CUSTOMERS" ... desperately trying to get more revenue from customers you already have ... which is a bad idea because the problem you are trying to solve to get out of the death spiral is new customers ... you're trying to figure out how to get more new customers at an acceptable cost.
Repeatedly across a 31 year career, I observe companies that make decisions that facilitate the death spiral ... at the very time they should be figuring out how to appeal to prospects, the brand spends less to convert prospects to customers and instead squeezes the existing customer base for everything the existing customer base can possibly give them.

Hint - this strategy "can" work, but more often than not, the tactics mentioned above push the brand further down the death spiral.

More on the topic next week.

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