Customer acquisition programs were the biggest cost concern within the marketing budget of most online companies 10 years ago. More than 80% of the business development used to focus on bringing new customers to the sales funnel. However, the last 5-6 years have witnessed a paradigm shift in focus, especially in the domain of online businesses, from customer acquisition to customer retention.
- Saturation Of Markets and the Increase In Acquisition Costs
The shift towards acquisition started happening when the market for many online businesses became saturated with the onset of recession. People were left with very little disposable income in their hands so that association with new brands was out of question. Acquiring a new customer costs 5-6 times more than retaining existing ones.
Mounting acquisition costs in the form of advertisement, PR and promotion made many businesses rethink and divert their budgets from acquisition to customer retention programs. Furthermore, businesses have realized that the cost of customer churn is a heavy price that every business pays directly to its competition by failing to keep existing customers happy and satisfied.
- Consumerism And The Difficult Buyer
With the advent of customer-focussed business, buyers have become more demanding. Compared to selling to existing customers, selling to new customers is more expensive and difficult. The selling probability of existing customers is 60-70% whereas in the case of new customers it is 5-20%. The expenses of marketing, promotion and advertising have already been allocated and need not be duplicated to sell to existing customers.
Barriers that deter buying intent have already been negotiated. Existing customers are easier to approach and convince. When it comes to post-sales, behavioural analysts have found that existing customers are more accommodating and forgiving, provided that the past performance of your products and services have been consistent.
- Loyalty – The Tool To Kill Competition
Customer retention programs not only invite existing customers back but also enhance the average order value of these clients. Studies reveal that the returning customer buys 33% more compared to the sales affected by a new customer. With the increase in both frequency and volume of purchases, customer retention programs shield your business better from competition. Because retention leads to referral marketing, it is the perfect tool to cross the barricade posed by competition in new markets. While competition has caused acquisition costs to rise it is only retention marketing that is a safe and more economical route available for businesses.
- The Way To Brand Positioning
Customer retention leads to a deeper knowledge of your target market. Your business tends to analyse customers in a deeper way than how it analyses new leads. This leads to the sharper and more realistic profiling of customers. Understanding existing customers is a boon to all businesses since it influences the products and services offered to those customers. This leads to the safe and secure positioning of your brand in the minds of your customers. With firmer brand positioning, businesses become brand leaders with more command over their competitors.
- Customer Retention Programs Get Results Quicker
Businesses need a lot of time and effort to convert new leads into customers. Before these leads zero in on your brand as their choice, it is very likely that the competition will intervene. In the case of existing customers, brand familiarization has already been accomplished. They only look for encouragement and continuity. When they find their preferred brand going the extra mile to serve their needs, their loyalty is unaffected. Statistics reveal that increasing customer retention by a mere 10% can lead to a three fold increase in profits. Another advantage is that when the business launches new products, it is quicker and easier to sell them to existing customers, with whom the brand connect has already been established.
- Word-Of-Mouth Advertising Is A Free Gift
When loyal customers become generous in praising a brand, it results in word-of-mouth publicity. It is more influential and powerful than all your costly marketing programs to bring in new customers. People are more likely to go by the recommendations of their friends or colleagues or other customers. This is because of the fact that what they say is a first-hand experience in using the product or the service. This is what makes word-of-mouth publicity credible. And you don’t have to spend a dime for it. It is the incentive that businesses receive for their user-friendly products and services and for unmatched customer service. For online businesses, customer testimonials boost the proportion of user generated content which leads to better search engine rankings.
- Tapping The Buying Potential Of Existing Clients
When a business has newly started, it is crucial to invest in acquisition. New customers are the revenue-generating sources that can lead to scaling -up of the business. However, many businesses maintain the same trend, even after years of establishment. It is important to invest in retention, after having acquired a good client base. This is because existing customers hold powerful buying potential. Such potential is wasted if proper efforts to retain them are not in place. By selling to 20% of existing clients, it is possible to generate 80% of the total revenue that your business can earn. The focus on customer retention is a must for businesses that have acquired a strong database of clients.
This dramatic shift from customer acquisition to customer retention programs does not mean that there will be no acquisition. Even the most loyal customers will become inactive one day or other and the business will come to a grinding halt for want of new customers. The focus on customer retention is a balanced approach and better retention can in fact prove beneficial to the customer acquisition process.