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What is more important to marketers – customer retention or customer acquisition?

Digital marketers face a big question in today’s world – is it more important to acquire new customers, or retain and nurture their current customer base?

It’s a conundrum companies have faced for years. Should marketers go out looking for new leads and improve sales prospects or develop a loyal and valuable customer? Industry leaders are constantly asking themselves where to allocate money, time and resources to attain the best results in today’s dog eat dog environment.

According to a recent survey by Econsultancy, 34% of marketers indicated that they will increase their investment in acquisition and 18% will focus investment on retention this year, while 47% will keep the balance unchanged. It’s all too easy to answer questions in a questionnaire but when it comes to putting your money where you mouth is, what is it going to be?

Of course acquisition is the cornerstone in the early stages of a start-up business. This is how you build your brand and your revenue. But quite quickly it will become clear that acquisition efforts make traffic, and generate interest (e.g. NL subscription) but on average in only 1.5% of cases does it result in a first time purchase[ii]. It’s also good for replacing those customers that inevitably fall away.  But this is all acquisition can do.

You’re then faced with the issue that on average only 20% of all customers in ecommerce business are repeat buyers. So while you can be proud of your acquisition success, the ROI of your efforts will be poor. All the costs of advertising, converting and incentivising for first purchase generate in 80% of cases only one purchase. But don’t despair, this is where retention marketing comes in.

Over a three year period, Luisaviaroma, a luxury online fashion retailer selling designer wear from brands such as Armani, Gucci and Givenchy, built customer retention in a spectacular fashion. Email open rates increased by 190% and emails generated 215% more online orders, while email continued to drive traffic to the client’s website. Static emails were turned into irresistible invitations to shop and the results spoke for themselves. Of course, the company, like all other ecommerce retailers, continued their efforts to continuously acquire new customers, but they were smart enough to balance it with a great effort in retention marketing.

As a marketer, it is essential to understand who your customers are; know what content you should send them; when you should send it; and how you should reach them.

Five top tips for how best to retain customers

Prioritise data capture

-       This will help you understand your customers in depth, spot patterns in their behaviour and capitalise on them. Data on your customers is priceless

Embed personalisation in all possible channels

-       Consumers expect to be recognised and rewarded for their loyalty. Personalisation makes this possible in a cost effective way from recommendation on what to purchase, to premium services or special offers for regular customers

Smooth, rapid response

-       React within moments of a customer engaging, deliver exactly the products they’re most likely to buy via recommendations, and ensure your content is optimised for all devices, including mobiles and tablets

Automate

-       Efficiency is king when you deal with fine margins, as most online retailers do. Anything that has to be done manually stifles profit. So automation is crucial and enables immediate responses

Experiment

-       The potential to learn what works and what doesn’t is enormously valuable. In email, split tests can be automated too so that a winning approach can be adopted and can then be used throughout

According to a report from the Chartered Institute of Marketing, some sources say it costs between four to 10 times more to acquire a new customer than it does to keep one.

But it is not as simple as an either or. The 47% of the Econsultancy study marketers who answered that they would treat both retention and acquisition with the same level of performance in the survey are on the right track. It’s about having a balance. You always need to capture new customers to grow and make up for lost ones. But intelligent and automated loyalty marketing programs can change the customer lifecycle curve. They can turn more first time buyers into repeat purchasers, produce more revenue out of buying clients, delay or even prevent customers from churning, and help win back those customers who have dropped off.

Companies that pay attention to this will be more profitable in the long term. Since only 8% of return buyers generate 40% of revenue then even increasing those active buyers by a small percentage will have a dramatic impact on revenue growth. Customer loyalty is not only about discounts and incentives; it’s about giving the customer rewarding, engaging experiences. The future revenue stream for many businesses lies not only in new data and new customers but by understanding existing data and then treating every customer as an individual.