How customer retention outweighs customer acquisition

 

Existing customers can generate significantly more revenue than newly won customers. Read here why your marketing tactics should focus more on the exisiting customer base to boost enterprise profitability.


Existing Customers Yield Profitability, New Customers Growth

70 to 80 percent of corporate marketing efforts focus on the acquisition of new customers on average. This is mainly based on the assumption that the existing customer has already been won and stays loyal to you as a company as long as nothing bad happens. Unfortunately those times are gone (forever) and as result companies with such a romantic view will soon face extinction.

Marketing experts point out that price wars for acquiring new customers are an expensive undertaking for companies on the global sales battlefield. The rising costs are rarely accompanied by more revenue.

In contrast, it makes a lot of sense for companies to focus more on existing customers, because they are literally "worth their weight in gold"


Seven New Customers vs. One Existing Customer

A study by Adobe Digital Index from 2012 shows that:

  • on average, an existing customer generates as much revenue as five to seven new customers.

  • with one percent of first-time buyers who visit an online store again, revenue increases by 10 percent.

  • returning buyers are reliable even in difficult economic times.


These findings do not make the acquisition of new customers superfluous. Obviously they are crucial to a sustainable company growth. However, they also point to how important it is to devote time to existing customers in terms of smart marketing efforts. Whoever can do that skillfully can maximize the CLTV (Customer Lifetime Value), thereby ensuring a significant increase in revenue.

 

So you want to drive customer loyalty? Well, then you need to start to pay attention to many details during the customer experience journey you are providing.

 

Much can be learned from companies that offer Saas or cloud services. It is precisely in this area that high customer flexibility reduces switching costs. This means that existing customers are prepared to switch to the competition more quickly. How companies can successfully avoid this is a lesson for all other companies. Finally, it is important to always keep in mind: high switching costs are not a guarantee that existing customers will remain loyal forever. Most industries/solutions/services offer plenty of alternatives, including vendors that subsidize the switching costs of customers to incentivize the “switch”. Switching costs are incremental expenditures, inconveniences, and risks incurred when a customer changes from one supplier to another.

You think you own your customers because of a physical customer lock-in, resulting in very high switching costs? Dream on, it's only a matter of time until an alternative is knocking at your customers door. It's not about if, but about when.


New Approaches to Communication Create an Emotional Bond

Positive emotions are of pivotal importance if you really care about customer loyalty. In addition, positive emotions may even lead to positive word-of-mouth behaviors, something extremely important for your future growth as a company.
 

In this context communication is vital to maintaining customer loyalty to a company or a brand. People who add a personal touch to customer relations also enjoy clear advantages. This is better achieved through personalized direct mailings than through Email-Marketing.

The usage of handwritten mailings e.g. in the context of the reactivation of dormant customers results in conversion rates of 10 – 40%, something that can easily be measured in terms of incremental revenues that otherwise would have not been generated by those existing customers.