In past posts, I have spoken about a disciplined NPD (New Product Development) and closely managed Go-To-Market process as necessities for effective market release. I have also spoken about target messaging and product individuality. These are all table stakes to making sure customers are cared for and products hit the right audiences. Today, I want to focus more on the age old marketing strategy question of where to put your marketing dollars, customer acquisition vs. retention.

It have long been a debate for companies who argue over whether it is more important to retain old customers because it is less expensive than acquiring new ones, or spend more to acquire because it is one of the most effective ways to get the new customers that will produce new revenue and become more valuable. Practically, a balance is ideal.

Retention Vs. Acquisition

There is a long standing axiom that companies putting money into customer retention over acquistion net the best return. Retention focused messaging is a good place to start, positions your company well and allows you to focus on the messaging that draws customers to your product. It should increase margin accretion, engagement and loyalty within the customer base. Always a good thing!

How to spend additional dollars and the split of the budget becomes the next important hurdle to striking a practical balance. The decision should be based on traditional product metrics (margins, internal costs, competitive issues, etc.). However, most companies proportionally spend more of the marketing budget on acquisition over retention. Why not? Acquisition is sexy and brings in new dollars. Albeit usually at a discounted rate and lower margin. Heavy acquisition spend should not be at the risk of retention or you will see increased churn and lower customer loyalty. Spend more on retention and those costly acquisition programs are not necessary because fewer customers are leaving. Take care of retention and you can hone your acquisition messaging and grab a larger share.

CRM is all about building relationships

Effective companies learn about their customer’s needs and values, and create programs to match that learning. Loyalty programs work great here. They give the customer value, provide product and industry education to the customer while affording you with an amazing opportunity to interact with the customer and learn what they need and want. These programs should define decisions on training and additional customer services. It opens a communication line with the customer through which you can build a more intimate relationship. Administration of the program is personal preference, but should be easy to understand and follow for the customer with social media as a lynchpin. Customers will return and “buy-up” with you if you are engaged with them and providing perceived value. You can even use a loyalty program as part of an integrated acquisition platform if you have strategic partners that provide value. Mining your partner’s customer records may be possible if there is a tie in. 

Onboarding – Done Right  = Stickiness

O.K. you are going to need to spend some money on acquisition, but make it a meaningful spend. Many companies fail to maximize a new customer’s relationship because of poor understanding
and investment in managing the relationship during on-boarding. Too often a company over “sells” a newly acquired customer without educating them on the brand promise, how the loyalty program works, or the many ways to interact or purchase with the company. If companies invest some time and effort immediately post point of sale in customer education, they can increase customer loyalty and add-on sales. Companies need to make customers feel special with a thank you e-mails, survey on purchase processes, or invitations to private events. You can even ask for customers to create an online profile with social media hooks in the survey process. Essentially, you are building better, longer lasting relationships with customers who are truly engaged. Don’t let your hard earned acquisition efforts go to waste by not properly onboarding your customer. On-boarding correctly will yield repeat customers, loyalty and stickiness.

In Summary

Generally companies with fully baked value add loyalty programs, spend 30% of their marketing dollars on retention. You should be spending 60% of your dollars on customer growth. If you have a good customer, you should be able to grow them. You should make sure you are getting as close to 100% share of wallet before abandoning spend on a customer. This resultant margin accretion is found money. You should ensure that person is growing by the level of involvement with you. Were they after the lucrative offer, or have you done a great job on-boarding them and making them an advocate for you?

Interestingly, in light of today’s economic challenges, companies who already have a loyalty program in place, have identified retention as a key goal for the loyalty strategy, and who understand that they are spending money to keep customers are much better off than those spending 90% of their budgets on acquisition. A clear message that can be delivered to existing customers is “we recognize that times have been hard. Here’s what we can do for you Mrs. Customer.” There is a level of trust in the relationship investment that makes it an easier message. So instead of spending $100 on that customer trying to acquiring them and discounting your product base you could spend just $3 talking to them, maintaining their business and making sure they don’t go to a competitor and being able to say “we’re here for you when you’re ready to spend again.” That $3 is a lot cheaper than $100. You create and enduring relationship that customers value and help thwart consistent “promo hopping”. So, spend on retention first and then spend on acquisition with a better focus on how to retain