Customer retention vs acquisition: the retail CMO’s battle to drive customer loyalty

| February 11, 2020 | By

Retailers plough too much time, money and resources into acquiring new customers, rather than focusing on where revenue growth really lies - customer loyalty.We all know that a retailer has two ways to grow revenue. Add new customers or generate more business from existing ones.

Attracting new customers is exciting. Successfully incentivising people to buy into your business over a competitor provides validation in the most tangible of ways.

Generating more business from existing customers, which come in the form of loyalty strategies, is often viewed as slow-moving, drab and unmeasurable.

When Yoyo first talks to our retail partners about their loyalty strategies, these are the three most common replies:Loyalty schemes can’t reveal IF my customer is actually staying loyal

Loyalty schemes can’t show WHY my customer is staying loyalLoyalty schemes just give FREE STUFF away (can’t reveal ROI)Hence why retail marketing and finance teams tend to pay less scrutiny to customer retention strategies, and often view them as a defensive revenue play. 

After all, the customer has already been won – status quo the order of the day.

The statistics reflect these dynamics: 

eConsultancy found that 44% of companies are more focused on customer acquisition, compared to just 16%, who are more focused on customer retention.

And yet, research continually indicates that meaningful revenue growth actually lies with the existing customer:80% of future revenue will come from just 20% of your existing clients (source: Gartner) Increasing customer retention rates by just 5% can boost profits anywhere between 25% and 95% (source: Bain & Co) Attracting a new customer costs five times as much as keeping an existing one (source: Lee Resources)Stepping back, it looks as if we’ve all been brainwashed into believing the future lies with the customers we don’t have, rather than the ones we do.

Why does this acquisition vs loyalty paradox exist for retail CMOs?

Have advertising bosses hoodwinked us all? Is it an overhang from the pre-CRM days? 

Possibly, but what is undoubtedly true is that a key driver of this paradox is measurement. To quote the late management guru Peter Drucker, “what gets measured, gets managed.”

At present, many retailers are unable to quantify the worth of their existing customers. Polling shows that just 11% of businesses strongly agree that they can accurately measure their customer lifetime value (CLV).Without reliable CLV data, it would take a very brave retailer to shift away from an easy-to-measure acquisition campaign to a customer loyalty strategy that can’t even produce a clear starting point.

This dynamic leaves us with an odd retail landscape. A place where most of the players are focusing on one tactic, meaning more competition and lower returns.

Meanwhile, those that are able to seek (and track) growth across all points of their business, have been flourishing. 

Check out our latest How To Guide around CLV below:

How retail CMOs can calculate an accurate Customer Lifetime Value (CLV) to build customer loyalty?

How can retail CMOs break the acquisition vs loyalty paradox?  

1. Breakdown the customer data you already have

The key here is to identify who your customers are and how they are engaging with your brand. 

It’s a simple way to quickly understand:

  • Who is an existing customer?
  • Who is brand new?
  • The different behaviour patterns of both new and existing customers
  • When is a customer slipping away?
  • When has a customer churned?

Today, this crucial insight is most consistently achieved when retailers can extract full SKU-level basket data from their point-of-sale every time a customer makes a purchase. 

This is the data that reveals who each of your customers are, as well as exactly when, where and what they buy.

How do you persuade your customers to part with this data? Ensure customers receive a superior customer experience:The customer receives a superior customer experience

In return, this enables you to gather the most relevant purchasing data from the point-of-sale:The retailer gathers the most relevant purchasing data from the point-of-saleYou only need to look at what the likes of Amazon, Netflix, or Starbucks to see the marketing power of the right customer data insight. 

And the reason the Starbucks app is currently used more than Apple Pay in the US, according to TechCrunch, is “because payments have been successfully tied to loyalty”.

2. Find opportunities within your existing customer base

With the right customer data now surfaced, the task is then to turn insight into opportunity.

A few simple scenarios could be:

Reactivation: High profit, inactive
Reducing your churn rate by just 5% can increase profits by 25% to 125% (source: InsightSquared).

If you know when and where your customers transact, you could create an automated campaign that sends an incentivising reward if they have stopped transacting over a certain period of time.

Reconditioning: Low profit, active
Upselling can increase revenue by 10%-30% (source: Sumo).

If you can identify a customer’s purchase frequency, as well as the products they are most likely to buy, you’re in a position to create campaigns that will incentivise customers to increase store visits and/or add complementing items to their baskets.

Referral: Loyal customers recommending your offering to their peers
92% of customers believe recommendations by friends and family over any other form of marketing (source: Nielsen).

If you can see when new customers make a first purchase, you have the ability to create automated campaigns that will reward them, as well as the referer, with popular or new product lines.

Check out our latest How To Measure Customer Loyalty Guide here:

How retail CMOs can measure customer loyalty

3. Outreach and influence 

The next stage is to turn your new-found opportunities into behaviour change, with campaign and marketing activity. 

This creates a virtuous circle that provides a retailer with measurement of existing customers, their behaviours and their worth, as well as means to influence them in real time.

The existing customer virtuous circle:

Customer retention, acquisition and the battle to increase revenue

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Recapping the customer retention / acquisition paradox

Successfully attracting new customers is not an easy feat. Price, awareness, the competitive landscape – it all goes into the equation.

As does the need for customers to make a target buy into your business’ philosophy, as well as place trust in you. It all equals time, money and resources.

Even after your acquisition investment, the odds of successfully selling to a prospect are between 5% and 20%. A tough model isn’t it?

On the flip side, your existing customer base already knows you. They even like you and trust you enough to give you their money. 

In fact, the probability of successfully selling to this group is between 60% and 70%, and they’re also 50% more likely to try new products and will, on average, spend 31% more compared to new customers.

Given those figures, what impact could it have on your organisation if you even diverted just 10 percent of your budget and resources towards customer loyalty strategies.


Check out Yoyo’s latest report, which reveals why customer loyalty isn’t dead:

Yoyo Report: Customer Loyalty isn't dead