Acquiring new customers can cost up to 7 times as much as retaining an existing customer.
It seems that the focus of most companies should be to retain as many exsting customers as humanly possible, then, (secondarily) growing the top line by attracting new business by filling the funnel. From an overall ‘cost per customer’ standpoint, prioritizing retention just makes sense. However, this is rarely the case. It’s more likely that these two goals are siloed off in separate divisions of a company; acquisition marketers have to hit their lead targets using their acquisition budget and account managers and retention marketers have their retention rate metrics (using their retention budget to provide discounts, win-backs, or demonstrate value to existing customers).
There’s a great quote from the movie Boiler Room that covers the problem in a nutshell.
How misaligned goals damage customer loyalty
Twice now, I’ve been in a situation where I wanted to upgrade to a newer cell phone model (two different cell phone companies). Unfortunately, I wasn’t eligible for a discount on a new device based on certain circumstances like time left on contract, etc. My only option was to pay list price ($500-$700) for the new device, or pay an early termination fee ($200) on the contract. As a new customer, however, I was able to get the same device for $100 as a special promotion. Doing the math, I inquired as to whether they wanted me to cancel my account and sign up as a new customer for $300 ($200 termination + $100 for the discounted device) rather than pay $500-700 list price for the new device. In each of these cases, I wound up cancelling the account and switching to another provider.
Car insurance companies raise (by 10-15%) your rate every year. If you’ve been with the same one for a while, you’re getting taken to the cleaners.
Cable companies offer new customer deals that frequently better than those for existing customers.
By focusing too much on customer acquisition, companies promote dis-loyalty
How do we reverse this trend?
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