Leaky bucket theory

Byron Sharp writing for the Ehrenberg-Bass Institute:

The leaky bucket theory suggests that companies are always losing customers, so to maintain share, you have to win an equal number of new customers to keep the bucket full, so to speak. To grow share, you have to be especially good at new customer acquisition, or you have to slow the leak.

The idea of plugging the leak became popular with theorists who sold the idea to practical marketers, who believed, without any evidence, that retention is cheaper than acquisition. The most extreme, and fanciful, example was from a 1990 Harvard Business Review article, “Zero Defections: Quality Comes to Services,” which alleged that the leak could be plugged for huge gains in profitability. Again, there was no empirical evidence.

In my book,  How Brands Grow, I emphasize a move toward customer acquisition. Many up-to-date marketers now accept the idea that gains in penetration are required for growth, so customer acquisition should be the emphasis of growth-oriented marketers. In terms of the leaky bucket theory, the emphasis has shifted from plugging the leak to accepting it. All brands lose customers, so the strategy is to work hard to fill the bucket with new customers at a faster rate than it leaks

Hey. I’m Alex Murrell. I'm a Planner at Epoch Design in Bristol where I help deliver highly creative, innovative and effective pack, instore and online communications for some of the world’s biggest FMCG brands. Want to know more? You can find me on Twitter or LinkedIn.

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