Customer Acquisition vs. Retention

Posted by on Jul 5, 2011 in Insight

I’m sure you have been privy to the statement, “it costs $XXX to acquire a new customer and only $XX to retain a customer lost.” Often a client lost is lost forever. No where did I see this more blatantly than when I was in the satellite/cable industry. What a fiasco! Cable had their “dish ‘buy-back'” program and satellite television would give out free junk just to incite people to purchase. At one trade show we handed out over 180 car survival kits. I know several people purchased specifically for the survival kit alone. Cost of acquisition was high, but retention of those customers still continues.

In digital signage we’re beginning to see similar occurrences. Signage software prices will continue to drop while usability and content creation tools continue to advance. Retention will most certainly need to be implemented into your game plan as the industry moves forward. Accordingly, such costs will need to be weighed against the many other costs of performing and managing any business.

Data Determinations Vary

Not only do costs of retention and acquisition vary from from industry to industry but they also vary within. Specifically, retention/acquisition costs vary by product, by company, and by strategy. I have heard it often stated that,

It takes 8 or 10 times more to acquire customers than it does to retain them.

Of course these numbers are going to range substantially across differing industries. For instance, the cost of retaining a Comcast cable customer probably has a much different retention ratio than say that of a financial services customer.

I feel it safe to interchange some vernacular here. “Easy” can also be synonymous with “cheap” when referring to customer retention programs. If customer retention in a specific industry is “easy,” it most likely means cost of retention is somewhat low in comparison to trying to acquire a newbie.

The Numbers are Impossibly Calculated

If you had any idea how much it was costing you to develop, sell to and manage many of your accounts, you may become a bit nauseous. It’s a costly proposition, but one in which is impossible to enumerate–especially as industries and products change and you become an industry-leader, hitting the masses. Often it may be impossible to see granularly who is leaving and who is coming on, especially as things are shaping up and happening so quickly. Forbes informs us:

Every company knows that it costs far less to hold on to a customer than to acquire a new one. That’s why customer retention has become the Holy Grail in industries ranging from airlines to wireless.

Yet defecting customers are far less of a problem than customers who change their buying patterns. Today’s typical metrics of customer satisfaction and defection don’t tell a company how susceptible its customers are to changing their spending patterns.

Further still is the issue of customer loyalty. In recent years customer loyalty has declined substantial across many industries. This, coupled with increased competition, price wars, and acquisition tactics, make it more difficult than ever to keep a customer once you have them.

Because both acquisition costs as well as retention costs are so difficult to calculate, it raises the question, “is it really worth it to work on customer retention if I don’t even know what the ratio is between it and acquisition?” Other rhetoric might include, “if retention is so important, how can I better implement a customer-retention program?” While these questions seem ethereal and subjective, they can often be the source of discussion which may lead to necessary asset redistribution. With that said, let’s talk about some methodologies for customer retention, shall we?

Five Methods of Customer Retention

1. Addict them. How does a crack dealer ensure he keeps getting them to return, he addicts them. Give them a software package that fulfills all their needs, and then some. But, at the same time, make sure

2. Keep it coming. Make sure you keep impressing them. Give them a new feature now and again so they can say to themselves, “that is why I went with these guys.” Give them a reason to believe.

3. Keep in contact. Let them know you really do care and that you are there to make their experience efficient and seamless.

4. Give them upgrade opportunities. This could include upgrades for both their sign software and their sign hardware.

5.  Support, support, support. Need I say more here. The adage, “you get what you pay for” may apply very well in this instance.

As the market expands, entrants come and go, and the general discussion revolves around maturation rather than expansion, vendors will need to use tactical measures to recapture their piece of the pie.

Five Ways to Acquire New Customers

1. Let them hear “the sizzle, not the steak.” Involve them in the “coolness” factor of your digital signage offering, not just the form and function.

2. Develop something remarkable, stand out, differentiate.

3. Lower your prices. While I am a big proponent of “value-added” selling, sometimes it is okay to lower your prices.

4. Pitch when they’re vulnerable. I have spoken to several people who’ve been ready to switch to a new system because what they were using was “clunky and difficult.”

5. Blog, get known and get your face in front of people.

Interestingly, we are not nearly close to the point of full maturation as an industry. We’re simply sitting on the precipice of expansion–in a veritable state of prepubescence. But our growth spurt is happening under our noses. The focus now is acquisition and initial planning for retention down the road. It reminds me of what Geoffrey Moore once said, “You must get into a mainstream market segment soon, establishing long-term relationships with pragmatist buyers, for only through these can you control your own destiny.”

Acquisition Cost Issues

Why does so much venture capital need poured into nascent technologies? Simple. Acquisition, acquisition, acquisition (oh, and perhaps some development). Unfortunately the world does not always pay for knowledge or quality. Most often, it pays for recognition, action, and “perceived” quality. Why do so many organizations purchase partial products, only to find smaller companies can do it better and cheaper. They purchased the name, thinking the product was a real “winner.” To reach an audience en-masse is sometimes exorbitantly expensive, unless you’ve been able to master social networking to the utmost. That’s it, Tweet all day, message your Facebook friends, and talk to your peeps on Linkedin. The only problem there is that most of those you’re connected with through those vehicles occupy the same niche you occupy. They are business partners, the competition, and those you need to sell to. They are not specific customers. How many niches will digital signage consume? It is very hard to tell, but its potential impact will be more far reaching when we focus on customer acquisition, through direct sales.

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