Customer Data & Analytics Blog

Customer Retention vs Acquisition — The Great Debate

Ed Wolf | 3 minute read

The-Great-Debate—Retention-vs-Acquisition.png

Coke vs Pepsi. Red Sox vs Yankees. Kirk vs Picard. iPhone vs Android. These mark some of the great rivalries of our time, and can always be counted on to spark a lively debate. Marketers, also, often face choices that can put them on one side or another of a hot button issue. Customer acquisition (obtaining new customers) versus retention (retaining and growing current customers) is one of these frequently debated topics. 

Obviously, companies need to do both. Without acquisition, there will be no new customers coming to the business, and therefore none to retain. Without retention, the cost of conducting business will skyrocket as businesses are forced to spend money acquiring new customers to replace those who leave. A growing business that is looking to steadily increase revenue and profits will always need a healthy mix of each, as well as a defined strategy on how to achieve this. 

Despite the importance of retention, studies and statistics show a clear preference for acquisition among businesses. In fact, reports show that 44% of companies are focusing more heavily on customer acquisition as opposed to the mere 18% that are concentrating more heavily on retention. This is interesting because studies also show that it’s far more expensive to acquire new customers than it is to retain existing ones. Most industry experts peg acquisition costs at about 6-7x that of retention. Additionally, the old Pareto rule applies, as some studies show that 80% of revenue comes from a mere 20% of all customers. It seems that, despite these facts, marketers have a preference for the bright shiny objects:   new customers. 

However, as the competition for new customers gets more intense, and more expensive, there are several reasons why businesses today should be doubling down on their retention efforts. Here are a few to keep in mind: 

Data – For most businesses, their greatest and most precious asset is their existing customer base. This is because this base contains a massive amount of vital information that is crucial to the company:  How did customers find you? What did they buy? How much did they spend? How frequently do they visit?  Do they like to buy online, in store, or both? Do they use your loyalty program? The sheer amount of information companies have on their existing customers is staggering. 

This data can clearly be used in marketing campaigns for promotions, or upselling/cross selling. New line of basketball sneakers coming out? With the customer analytics tools available today, marketers can quickly query their customer database to find the list of likely basketball gear buyers and send them the appropriate offer. Want to win back churned customers? Again, marketers can quickly sift through their data to find the right “welcome back” promotion. Not only that, but they should also know exactly what offer each customer will respond to, and via which channel. 

This can actually help with acquisition as well, as smart marketers can look at where their highest value, or VIP, customers came from, and focus their future acquisition efforts on those sources. 

Cost – It’s an oft-cited statistic that acquiring a customer typically costs around 6-7x as much as retaining one. This detail alone is a pretty strong reason why businesses should make sure they are focusing on retention. 

The reason for these cost differences are easy to see. To find and acquire new customers usually involves paying someone significant dollars to access potential buyers. It includes channels like SEO, PPC, Social Media ads, tradeshows, direct mail,  print advertising, agencies, and others. On top of that, marketers are somewhat throwing darts at a board blindfolded, since each of these paid channels are in themselves mini-experiments where the result is unknown. 

For example, in the effort to win new customers, businesses may have to spend tens of thousands of dollars on a given campaign, only to find a sliver of success in converting new buyers. The old adage in marketing applies here: “Half the money I spend on advertising is wasted; the trouble is I don’t know which half.” 

Retention, on the other hand, is by far the cheaper, low hanging fruit. While marketers still need to run campaigns to their existing customers, these are much easier since their product affinities, preferred channels, purchase frequencies and other data are already known, hence less guessing is involved, and the blindfold is off. 

Also, the channels by which existing customers are targeted are far less expensive. Email marketing, marketing automation, even SMS and push notifications are much more direct and personalized, and light years more effective than the “spray and pray” methods used in acquisition. 

So, in summary, the retention vs acquisition debate will likely rage on for years to come. Again, businesses clearly need both to thrive. But the case for a renewed focus on customer retention is strong. One problem that can sometimes get in the way of solid retention efforts is data. While, as we mentioned above, businesses have a gold mine of data on their customers, they often struggle with how to effectively harness that data for micro-segmentation and predictive analytics—the keys to successful 1-1 marketing. 

If you would like to learn how to utilize your customer data for effective retention marketing, please visit www.zylotech.com and explore our customer analytics platform.

Topics: Customer Analytics Customer Intelligence