19/08/2014
Why Customer Retention Is More Important Than Acquisition:
Digital marketers today often grapple with the allocation of resources while drawing up a digital marketing plan. The challenge though is to judiciously invest the marketing budget in a manner that delivers the most impact and results.
However, the key question that puts marketers in a dilemma is a strategic one:
1. Do we focus on Customer Acquisition or Customer Retention?
2. Do we go after recruiting new customers into the fold or rather look at ways and means of retaining the customers we already have with us and build a deeper relationship and loyalty?
In a recent survey conducted among digital marketers, 34% of the participants indicated that they would increase their investment in acquisition, while only 18% would focus on retention. If we look at content marketing strategies, one of the main goals is acquisition (71% of responders). Marketers obsess over acquisition, believing that the more they acquire, the more the chances of retention. They overlook the old adage of ‘a bird in hand is worth more than two in the bush’ and instead run after acquiring new customers – a proposition that could turn out more expensive in terms of investment, with no assurance or guarantees of returns.
Setting the Right Objectives:
As digital marketers, we must think of sales as part of the job too. In the traditional business model, the sales and marketing functions are seen as distinct and separate from each other. Not so in the digital marketing field where marketers are the superheroes of the digital space, and are essentially the sales force responsible for revenue from each marketing activity.
The world of digital marketing is getting more complex with an increasing number of channels (Web, email, social, mobile) and customers and prospects are broken down into small communities in different channels. For example, they move from Facebook to smaller and more intimate communities such as technologies like WhatsApp, Vine, WeChat, Snapchat, and many others. In short, the job of a digital marketer is ever challenging.
Sometimes the focus is directed too much toward the channels and much attention is given to seeing what’s new out there and making sure we’re reaching out to customers and prospects in all channels without real objectives behind what we want to do. Does an increase in followers equal success? Does it translate to revenue?
It is important to remember that channels are channels and not objectives. They’re there to facilitate customer engagement while linking it to our (often quantifiable) objectives as digital marketers.
The strategic objectives that digital marketers need to set and measure in order to generate revenue are:
• Convert leads into buying customers
• Increase the lifetime value (LTV) of your customers
• Win back inactive and lost customers
Let’s look at the customer lifecycle and its journey from a lead to a churning customer.
1. Convert Leads to Customers
Most of the budget we invest in digital is directed toward acquisition strategies such as SEO, pay-per-click (PPC), Facebook ads, banners, affiliation, etc. The true objective is to take the leads we invest so much money in and convert them into buying customers.
We need to measure how much money we spend on each channel against the conversions we have. If we don’t do that, then our acquisition strategy is merely a hobby. Assigning monetary values to each channel and looking into conversions is often called attribution. We want to measure the increase in conversions against our actions while assigning desirable targets. For example, 20 percent of my leads are converted into buyers each month.
2. Increase LTV
Given the investment we’ve made in acquiring the customers, every sale we will have from now on will yield larger gross margins (the purchase cost doesn’t include the acquisition costs anymore). And hence we need to look at increasing the spend from our existing customers and make sure they are retained. Here you need to look into increasing the average purchase value and the increase in their engagement metrics (more visits, increased time on site, review of products, etc).
3. Win Back
The third and last objective is to try to pull back the customers who churned or are inactive toward the center of the customer lifecycle, so that the pool of customers we have will churn in a slower pace. (Twist it, turn it, customers will always churn. The best you can do is to delay their churn)
Coming back to the key question of Acquisition versus Retention, it becomes clear that if you focus your efforts mostly on acquisition, you’re actually working for your competitor who provides their customers with a more individual customer experience, and making sure that their customers stay loyal.
If your business is an established one, chances are that growing your business will be cheaper and faster if you retain and sell to your existing customer base. This does not mean that you abandon acquisition efforts completely, but you need to shift the focus to those already in the bag.
If you are a startup, then naturally your initial objectives should be to focus on new business acquisition, and then as the customer base increases, start shifting the focus to retention.
Customer acquisition has its place and time in the sun. The trick is to move the balance in favour of Retention, once you have a sufficient base of customers because it is cheaper to drive business and revenue from a bird in hand.
