Article

Retaining customers is the real challenge

A new report claims that, for the first time ever, marketing to existing customers is exceeding that to new ones.

Published on January 20, 2006
min read


A new report claims that, for the first time ever, marketing to existing customers is exceeding that to new ones. The exact statistic given is that 53 per cent of marketing budgets is now devoted to existing customers. If this is true, then the acquisition of customers is becoming less of a goal than the retention of them. Perhaps, at last, both clients and agencies have come to appreciate the Bain & Company theory that, by increasing retention by as little as 5 per cent, profits can be boosted by as much as 95 per cent. However, marketing budget realignment will only reap the desired rewards if companies take a holistic approach to the whole area of retaining customers. The strategy of merely reassuring existing customers that they have preferential rates over new ones will fall on deaf ears if the service element fails to reflect the projected image of the brand. After all, while consumers are exceedingly price-sensitive, they also react positively to better service. To date, too many companies have relied on discounts as a recruitment incentive, which are ultimately followed by price increases to boost profits. As long as there has been the ability to acquire customers relatively cheaply, many brands have not bothered to tackle the tougher question of how to keep customers happy. But these practices fail to appreciate the role of customer service in deepening loyalty. The consumer will stay loyal, but only when the supplier provides an integrated platform of offerings and a service that reflects the projected brand image. Too often, companies are a pale imitation of their projected image, leading consumers to migrate. To stem the flow of departures, companies need to spend more of their budget on retaining consumers with a range of initiatives—and not make all of them price-led. For instance, they can develop programmes that produce insight into customer behaviour and buying patterns, allowing for better customer service and reward programmes. While we applaud the change in emphasis away from chasing one's tail and constantly trying to acquire new customers—historically to the detriment of existing ones—there is still a long way to go before companies can claim to understand and appreciate loyalty.

A new report claims that, for the first time ever, marketing to existing customers is exceeding that to new ones. The exact statistic given is that 53 per cent of marketing budgets is now devoted to existing customers. If this is true, then the acquisition of customers is becoming less of a goal than the retention of them.

Perhaps, at last, both clients and agencies have come to appreciate the Bain & Company theory that, by increasing retention by as little as 5 per cent, profits can be boosted by as much as 95 per cent.

However, marketing budget realignment will only reap the desired rewards if companies take a holistic approach to the whole area of retaining customers. The strategy of merely reassuring existing customers that they have preferential rates over new ones will fall on deaf ears if the service element fails to reflect the projected image of the brand. After all, while consumers are exceedingly price-sensitive, they also react positively to better service.

To date, too many companies have relied on discounts as a recruitment incentive, which are ultimately followed by price increases to boost profits. As long as there has been the ability to acquire customers relatively cheaply, many brands have not bothered to tackle the tougher question of how to keep customers happy.

But these practices fail to appreciate the role of customer service in deepening loyalty. The consumer will stay loyal, but only when the supplier provides an integrated platform of offerings and a service that reflects the projected brand image. Too often, companies are a pale imitation of their projected image, leading consumers to migrate.

To stem the flow of departures, companies need to spend more of their budget on retaining consumers with a range of initiatives—and not make all of them price-led. For instance, they can develop programmes that produce insight into customer behaviour and buying patterns, allowing for better customer service and reward programmes.

While we applaud the change in emphasis away from chasing one's tail and constantly trying to acquire new customers—historically to the detriment of existing ones—there is still a long way to go before companies can claim to understand and appreciate loyalty.