Stop spending money on retention and start focussing on acquisition

Audience Group's Tom Evans argues that when it comes to the question of retention vs acquisition, the numbers only point one way: loyalty is no longer marketing's star player.

In late 2017, a research report that gained some industry media coverage declared that in 2018, 76% of marketers would prioritise customer loyalty over new customer acquisition.

I mean, that may well be true, but it’s not the way to go. Why? There is no brand loyalty. Not anymore.

Customer retention relies on offering a great product or service, and excellent customer and brand experiences. These are baseline customer expectations in a time of growing promiscuity vs brand loyalty. So yes, brands need to deliver on expectations if they even have a hope of retaining a customer.

But going after brand loyalty by investing in retention campaigns and programs and measurement tools that compromise a brand’s ability to invest in acquisition efforts will hamper growth. Churn happens. A brand’s customers are buying its competitors’ products, too. The upside from focusing on getting more customers is much bigger than the downside of losing a few.

In some industries, churn is part of the process

Reading this report, I couldn’t help think of clients in industries such as early childhood education and childcare services or retirement living, where churn is unavoidable.

Yes, you want your customers’ families to be return customers with subsequent children or retirees, and you want great word-of-mouth references in both situations, but if you focus on customer loyalty too much you’ll be severely limiting your growth.

In such situations, organisations can’t focus their advertising on churn; they need to address brand loyalty with the quality of their product and services, and focus advertising on acquisition.

Chasing brand loyalty is futile

Even in situations where brand loyalty used to maybe exist, things have seriously changed. We all know that – thanks to ample choice and the “seamless omnichannel experience” so many brands strive to deliver – it is easier than ever to switch back and forth between brands when making daily purchase decisions.

Isn’t it counterintuitive, then, for marketers to spend a brand’s money on retention programs when brands themselves are making it easier for consumers to switch?

Mobile access to real-time information and reviews, fed by fellow consumers and brands themselves, means consumers are discerning and constant researchers across a whole range of purchase types, large and very small. Trying to encourage a customer to stay is now arguably much more difficult than convincing someone to ‘hey, try us once’.

One only has to read Trip Advisor, product review sites and brands’ Facebook pages to realise that many consumers have moved past discerning to downright judgemental.

According to a recent survey of 1,000 brand-loyal Australians, one in five said they would switch brands after just one bad customer service experience. A majority (52 percent) of consumers aged 45+ reported having a nemesis brand — a brand they will never do business with again because of the poor customer service they received. It’s not brand loyalty if it can all be thrown away because of one bad experience.

Retailers have to assume that each customer is constantly about to buy something else, and strive to win every shopping journey.

Why swim against the churn?

Brand A has a market share of 10%. It strives to reduce churn from 50% to 0%, and it works. Now Brand A has sold 50% more widgets. But what if it was also true that in their category, 70% of buyers are willing to swap between brands. That means an extra 70% is actually available to win, which is 14x more than current churn.

Brand B is in the services industry, where we know churn can be really light; as low as three to seven percent. Its extensive efforts towards brand loyalty succeed, and Brand B retained all customers. Who cares? The sales gain is so negligible. Brand B would have been better off focusing on acquiring more customers.

Is retention really cheaper than acquisition, especially at the cost of growth?

As marketers we have had it hammered into us that retention is cheaper than acquisition. We have been taught and told that it costs x times more to acquire a customer than to keep one. But how many clients have ever accurately measured it in their own business. For those who believe it – have you actually measured it yourselves?

We’re not buying it. We’re switching.

Even if a brand is already providing a really great experience, someone is still going to churn. What can you realistically do to stop that? At what cost?

Brands: don’t ask your marketing agencies to spend time, effort and money coming up with and implementing a customer retention program. (And if that’s what they’re pitching to you, ask them to try again.)

Your goal should be to go and find new customers. If you really want to grow – go get more customers.

Tom Evans is MD of Audience Group.


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