The Great Retail Paradox: customer retention, acquisition and the battle to increase revenue

| September 12, 2018 | By

Retailers are ploughing too much time, money and resources into acquiring new customers, rather than focusing on where revenue growth really lies, says Yoyo’s VP marketing and growth, Andy Wray.

The Great Retail Paradox: customer retention, acquisition and the battle to increase revenue

A company has two ways to grow revenue. Add new customers or generate more business from existing ones. 

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

Generating more business from existing customers is slow-moving and drab. Companies tend to place customer retention strategies in the hands of lower paid employees, give them less scrutiny and often see them as a defensive revenue play. The customer is already 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 lies with the existing customer.

  • 80% of future revenue will come from just 20% of your existing clients (Gartner Group)
  • Increasing customer retention rates by just 5% increases profits by 25% to 95%. (Bain & Co)
  • Attracting a new customer costs five times as much as keeping an existing one. (Lee Resources 2010)

Welcome to the great retail paradox of the 21st century

Organisations continue to plough more time, money and resources into acquiring new customers, rather than focusing on where the money really lies – generating more business from existing customers.

Stepping back, it looks as if we’ve all been brainwashed into believing the future lies with the customer we don’t have, rather than one we do.

Why the paradox exists

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 companies are unable to quantify the worth of their existing customers. Recent polling showed that just 11% of businesses strongly agreed that they could measure their customer lifetime value (CLV).

Without reliable CLV data, it would take a very brave company to shift away from an easy-to-measure acquisition campaign to a customer retention 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.

Breaking the paradox  

What do companies need to do break the paradox?

1) Breakdown the data you already have

The key here is to identify customers and match them to purchases.  It’s a simply way to quickly understand:

  • Who is an existing customer?
  • Who is brand new?
  • What are the behaviours and CLVs of both new and existing customers?

Today, this is most consistently achieved through digital retail loyalty schemes, which provide a value exchange between the customer, who receives a superior customer experience, and the retailer, which can gather the most relevant purchasing data at the point-of-sale.

Think Starbucks, Amazon or Walmart.

2) Find the opportunities in the existing customer base

With customer data now surfaced, the task is then turn this insight into opportunity. A few simple scenarios could be:

  • Reactivation: High profit, inactive
  • Reconditioning: Low profit, active
  • Referral: Loyal customers recommending your offering to their bringing peers

3) Outreach and influence

The next stage is to turn your new-found opportunities into behaviour change, with campaign and marketing activity through the owned CRM channels. This creates a virtuous circle that allows measurement of existing customers, their behaviours and their worth, as well as means to influence them.

The existing customer virtuous circle

Customer retention, acquisition and the battle to increase revenue

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 them 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 that investment, the odds of successfully selling to a prospect are between five and 20 percent. 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 percent, and they’re also 50 percent more likely to try new products and spend 31 percent 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 retention strategies?

If you want to know the answer to that question, drop Andy a line at hello@yoyowallet and we’ll show you how we’ve helped other companies grow.