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Punching Above Its Historical Weight: Why Retention Should No Longer Play Second Fiddle to Acquisition

You got one marketing dollar. How are you going to split it? Decades ago, it was all about getting people to buy with you in the first place. But there's a towering pile of evidence now that is screaming you should really take better care of retaining existing customers. Here's the case

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Some questions are as old as time. Take the whole chicken and egg thing. In comparison, Acquisition VS Retention is a much newer concept. Still, it’s such a critical business question that we’ve been writing about it for years.

And, if you’re reading this right now, it’s safe to assume you care about it a little more than you do about poultry reproduction mysteries, with all due respect to any oviparous roaming the face of the earth.

And, if you’re reading this right now, you probably know Acquisition is the more “famous” side of the argument. First, because it was here first. Advertising and branding not only come first in the funnel but also historically. After all, to do retention properly, and at scales almost as large as a highway billboard, marketers had to wait for the right technology to arrive. (it has, in case you’re wondering)

It’s also sexier, and it’s easy to see why: if you greenlight an advertising campaign, the people next to you on the train can rustle through a newspaper or glance out the window and bump into your work. This is not the case with most “customer loyalty” initiatives.

But, in a digital-first, eCommerce-led world, the truth is that the Acquisition VS Retention dilemma should be a top priority for every business. And Retention should be punching way above its historical weight.

Back in 2017, HubSpot research found that “it costs anywhere from 5 to 25 times more to acquire a new customer than to retain an existing one” and that”at some point, your acquisition math will break.”

In 2018, The Loyalty Report – well – reported, that:

  • 70% of customers are more likely to recommend brands with good loyalty programs.
  • 77% are likely to stay with a brand with a loyalty program.
  • 63% are prepared to modify their spending habits to maximize the benefits of a loyalty program.

That’s the kind of customers any business dreams about.

In 2020, Bain & Company and Harvard Business School wrote that “increasing customer retention rates by 5% can increase profits by 25% to 95%.” This math does not break, by the way.

Then came Covid and Covid policies, and validated these truths in more than one way. And, if business leaders learned anything during that time, they discovered that Acquisition is the “trendier” sibling in their marketing family, the one easily affected by changes – cultural, pandemic-related, or others. And that, on the other end, Retention is the more “stable” one, the source of revenue that you can count on, even in times of elevated uncertainty.

And now, it seems that the understanding that Retention should actually be considered as a strategic initiative of equal importance to Acquisition was never more prevalent.

In a CommerceNext survey of CMOs from mid-2021, “Retention/Loyalty Marketing” was named the area where marketing leaders are looking to increase their investment the most. Within it, “scaling segmentation” – an essential requirement for a proper retention/loyalty strategy – came second as the biggest challenge in retention marketing. (and this is where we say that, actually, scaling segmentation isn’t such a headache, if you got the right technology, ahem ahem)

Overall, marketing leaders nowadays seem so aware of the power of smart CRM Marketing, the importance of personalization at scale, and the impact of micro-segmentation – that even when asked about their priorities for the holiday/shopping season, “Retention/Loyalty Marketing” came in 3rd, only behind “acquisition” (#1) and “eCommerce/site experience” (at #2).

The bottom line is that in such reality of constantly rising acquisition costs, trendy acquisition changes, and next-gen tech to support Retention and segmentation at scale, there are really no two ways about it: striking the right balance between investing your marketing dollars in getting new customers and retaining the ones you already have, is a make-or-break way to ensure healthy business growth.

As we explain in much detail here – in one of our most popular blog posts ever – there’s a clear connection between a company’s growth status/trajectory and its new-to-existing customer ratio. In addition, in recent research, we saw an even more staggering relationship between a company’s business performance and its new-to-existing balance. We called it “In with the Old: Why Brands Should Aim for a Low Ratio of New Customers.” Controversial, we know. It gets people clicking, in any case.

On top of that, some data-driven work we did for this past Black Friday/Cyber Monday shopping season clearly showed that even in peak periods, “It’s Wrong To Prioritize New Customer Acquisition During the Holidays (at the expense of existing customers).”

Going forward, these insights, rooted firmly in big data, should play a key role in your yearly plans and overall business strategy. Of course, along with always leaving some wiggle room for ad-hoc, pandemic/crisis-mode scrambling. You know, the kind of things that are as old as time.

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