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It’s one of the most resilient “bird-in-hand/two-in-bush” arguments. What is the most valuable business marketing approach; customer retention or customer acquisition? It seems like it may be a trick question in that most believe that the only obviously correct answer is that both are equally important. There may have been a time, before the evolution of digital and virtual communications, that the retention argument fared a little better due to cost factors. A time when the cost and effectiveness of existing marketing channels were much more limited and performances less certain, but communication technology has once again, changed everything.
Acquisition proponents now argue that focusing on acquiring new customers will lead to higher sales volumes more quickly and will result in an expanded base of new, soon to be, loyal consumers. The position is bolstered in a time when digital communications yield a nearly infinite number of low-cost methods of identifying finely-targeted touchpoints with potential customers. It is argued that an acquisition strategy may outperform one that is focused heavily on retention due to marketing automation technology that is making it easier than ever to connect with new customers at a fraction of previous costs. The improved credibility of data and performance analytics has made campaign effectiveness undeniably more reliable. The acquisitionist’s new position is reminiscent of an old one: “if you can efficiently throw more mud against a wider wall effectively, more will stick.” After all, if you’re always focused solely on existing customers for sales, how can you expect to grow the business?
Those who advocate weighting the value of retention over acquisition appear to have favorable numbers, however. Recent research performed by Frederick Reichheld of Bain & Company indicates that the cost of acquiring new customers over retaining existing customers is five-times more costly. Also, a 2 percent increase in customer retention is the equivalent of cutting costs by 10 percent. Data provided by Marketing Metrics shows that it’s 50 percent easier to sell existing customers than new customers, and the likelihood of upselling a new customer is 14 times higher than closing a potential customer. But is it really better to focus on selling one customer twice than selling two customers once?
As with so many aspects of doing business, the current pandemic is impacting the merits of the acquisition or retention debate. With the abrupt closure of so many businesses and the resulting economic impact, all businesses are evaluating every aspect of operations to identify and implement cost efficiencies. Marketing programs are always a target of cost cutting during economic downturns, and the colossal downturn caused by the pandemic is certainly no exception. The challenges of acquiring new customers in the era of COVID-19 suggests that the scales for acquisition and retention be tipped in favor of retaining existing customers. However, to achieve a successful outcome utilizing the retention argument, it is imperative that a memorable customer experience is achieved through the entirety of the customers’ journey. The inevitable reduction of customer service assets during this period makes it less than certain that complex customer experiences and satisfaction can be maintained throughout the process.
The debate, regardless of the era, is most likely a circular one. The best and most beneficial path is a combination of the two approaches accompanied by some tested and true elements that will prevail in times of hardship. Campaigns should focus on addressing and solving the needs and problems of customers. Avoid negative messaging and be consistent, positive and inspiring in all marketing efforts across channels. The goal should be maintaining brand loyalty and market share, not profits. Don’t be tempted to pinch evaporating marketing spend and bail on all marketing efforts. Brands that market through a downturn come out stronger on the other side. “You can focus on adoption, retention, expansion, or advocacy; or you can focus on the customers’ desired outcome and get all of those things,” says Lincoln Murphy, co-author of Customer Success.
For more on developing a focused and efficient marketing strategy during these times of economic challenge, call Junction Creative Solutions today at 678-686-1125.