Why do brands spend more effort on new customers than existing ones?
Understanding where the love is for existing customers when a great new deal is typically afforded only to new customers.
Don’t you hate this too?…
You see a great 100gb data deal with a new smartphone… But it’s for new customers only.
You get a free month of gym membership… But it’s for new members only.
Six months free in cable tv… But it’s for new subscribers only.
An introductory low-interest rate for 12 months on a loan… but it’s only for new borrowers.
You see where I’m going with this, but I’ll say it again - where’s the freakin’ love for existing customers?! 🤷🏻♂️
More effort (time, money, labour) is spent gaining new customers from marketing and advertising than keeping a loyal existing customer
I’ve long lamented brands that I buy into, dishing out new deals to new customers only. It’s like being back in primary school when your best friend starts showing interest in a new kid that just started half-way through term. Or when you see your boyfriend checking out some hot Insta-girl on his feed. It hurts, man.
When I did a little digging into this pet peeve of mine, I wasn’t surprised that 44% of companies are far more focused on drumming up new business from new customers. With marketing efforts that range from your typical Facebook ad on Instagram Stories, to campaign marketing and advertising, the more alarming stat was that comparatively, only 18% of businesses are actively focused on retaining existing relationships with customers. While 70% of companies agree that it costs less to retain a customer than it does to acquire one. Is it just me or is this crazy town? Either way, let’s dig a little deeper.
CPA and/or CAC < LTV
Gotta love a confusing marketing/business acronym 🤦🏻♂️ Cost Per Acquisition (CPA), Customer Acquisition Cost (CAC) and customer Life Time Value (LTV) are the coveted measures for the effectiveness of a brand’s sustained growth. It’s this statistical analysis of buyer behaviour and value to a brand that helps elevate and measure a brand’s success but at the same time, takes away a heap of the humanity behind what a brand stands for.
The long and short of customer acquisition is that the key is to focus on serving those who are most likely to return the CPA/CAC investment by achieving the desired average customer LTV. In other words, your marketing efforts rely heavily on the customers who are only likely to be committed to the brand for the long term. Which is most likely a brand’s loyal superfans who advocate for the brand too, rather than the majority of who your customer base is. Or at worst, are they are simply the customers who are suckers for advertising and/or can’t be bothered to make the effort to switch to a competing brand.
Now let's say more customers than not, do align well with the brand and are superfans for this argument’s sake. Because what beggars belief is that if CPA/CAC hinges on LTV being achieved and returning more than the investment in CPA/CAC. Then why is every single brand in this day and age not equally focused on retention AND to be striving to achieve each and every customer’s LTV potential? Especially as LTV is such a meaningful measure for long-term brand growth and revenue success.
Which makes me think of three reasons why more companies are focused on acquisition marketing:
- That business growth to some companies on paper is in the number of customers they have who have made at least one purchase or engagement. Basically, they're all about the vanity metrics. Because customer LTV is widely miscalculated by many companies (only 42% of companies measure LTV accurately) and as a result is likely not used to properly determine brand value or growth for that reason.
- Another reason could be that more is proportionately spent on CPA/CAC if the initial purchase price is ROI positive. The hope in this scenario, especially for a new to market brand, is that their marketing strategy hinges on finding ideal customers that are likely to make that initial purchase. Which would also be most likely for industries that are less likely to have repeat purchases, or as I said, for those starting out, where the need for LTV is less necessary at either point.
- But also, if the potential LTV is greater than the cost/effort of acquiring. But the majority of new customers aren’t hitting their LTV. Companies who are playing an early and/or short-term growth strategy will focus solely on market penetration with the goal of acquiring the most customers possible and thus striving to achieve a leading market share. It’s a costly exercise, especially for brands in their early startup phase — unless there is investor capital to utilise. But when their brand grows in size and reputation, customer retention/repeat purchases will naturally increase over time and retention efforts can (hopefully) come into play at a later stage of business growth.
What’s more, is that if LTV is not being achieved:
- It shows that the brand isn’t focusing on acquiring the ideal customers that will deliver on their LTV. Either based on what they are willing to pay or the outcome they are looking for, to make it a viable business.
- It’s an indication your offering is not understood or that it’s not delivering on its promises, leading to a bad experience.
- You also can’t expect a high LTV if customers aren’t engaging with your brand. So the weaker your links to your customers are, the less loyalty and repeat business you receive. Meaning that if LTV isn’t being achieved, you’ve more likely got a brand problem, rather than a marketing problem.
After looking at what LTV means for a brand, there’s a clear link between retention and LTV. So much like brand building where the goal is to be known, liked and trusted. LTV is a long-term measure for success that indicates retention, while also helping to predict and drive brand growth in addition to customer acquisition and the amount a brand can afford to spend on its marketing efforts.
Loyalty, advocacy and rewards
LOYALTY
There is an interesting dialogue I’m seeing around customer loyalty in the marketing and branding space. With notable names like Bryon Sharp in his two-book series, How Brands Grow that scientifically analyses the buying behaviour of customers to show that we buy brands out of habit, not commitment. While researchers like Ethan Decker suggest that we need to stop aligning words like love and loyalty for brands like we do for inter-personal relationships with each other as humans.
Now as humans we want to be loyal. We’re not as loyal as animals like beavers and wolves it turns out, but that sense of belonging, affinity and ties to a brand I think are reasonable even if research so black and white disproves what we think our buying behaviour is characterised as.
This isn’t to say that all customers are loyal either.
- They may be infrequent buyers (think, holidaymakers)
- Buyers out of necessity rather than want or choice (think, toilet scrubbers)
- Their buying habits may change due to life changes or changes in financial status (think, 40-year-olds that no longer drink Red Bull)
- Or simply they are just one time buyers (think, home buyers)
The most sobering fact is that the vast majority of your customers won’t be a die-hard loyal, like I know I am to some brands…which I’ll get into shortly. This is totally fine, as I’m not suggesting a brand should focus 100% on retention because not all customers will buy again or live up to their potential LTV. Rather, an equal balance is much more beneficial than focusing on one or the other.
One particular statistic I found that relates to the impact of brand loyalty, was that loyal customers are 5x as likely to repurchase, 5x as likely to forgive, 4x as likely to refer, and 7x as likely to try a new offering. While ‘likelihood’ is not a guarantee comparative to new customers, the higher probability of success weighing in a brands favour if they support those who choose their brand over others, has got to be seen as a reasonable argument for the necessity to equally focus on brand retention. While loyalty (or whatever word you want to semantically use for the cause and effect of a repeated and/or habitual purchase) does give reason to believe that it is still important for a brand’s long-term growth.
Which leads me to share 3 quick, personal stories as to why I believe brand loyalty exists.
Story 1 — Emotional
I’ll preface this by saying you’ll think I’m crazy. But for a good 2 years, I used a brand’s particular oil and balsamic salad dressing every day on my salad lunch. Until one day they changed their formula and packaging. The dressing tasted different and the consistency didn’t allow it to stick as well to my salad. Yep, I’m picky about my salad dressings 🤪
Any normal person would just deal with it. But not me. Not only did I stop buying that particular product. I also contacted the brand on Facebook to share my 3-year-old toddler-like, foot-stamping mood with them, venting my displeasure. However, I did stick with their brand and tried a new salad dressing of theirs and used it for a good 6–12 months until…dun, dun, dunnnn! Once again they discontinued that product 😓
What did I do? Well of course I slid back into the brand’s DMs (of which my last vent of frustration was still visible to their current social media manager) and vented again. 2/2 bad experiences with this brand. Now you’d think I’d have given up on this brand as statistically many do from just one bad experience. But what you don’t know is that I’ve been using this brand’s mayonnaise sauce since I was a kid. I still use it today and it’s my all-time favourite. So much so that I’m put out when it’s sold out and I actually won’t buy another brand of mayo in substitute. I’ll either wait a week until our next grocery shop or try another store. This to me is brand loyalty — I may not be the majority, but here I am advocating for a brand named Praise.
Story 2 — Family
My own mother is very partial to a particular dairy brand here in Australia. They’ve been around for more than half a century and many many years ago this dairy brand hired my grandfather (my mother’s father). This brand gave my mother’s family of 9 people (2 parents and 7 kids) a livelihood from my grandfather's job.
To this day, my mother buys Devondale products when given the choice. It’s a commitment to the brand that not only gave her childhood memories, like my favourite mayonnaise that she would also buy for us. But also because it gave her family the opportunity to thrive.
Story 3 — Career
When I graduated high school and began my tertiary education at university to study visual communication design in 2006, there was a growing hype around creatives using Apple computers. So, of course, I bought one for the first time after never having owned any other Apple product other than a second-ever generation iPod.
Where I’m going with this is that the MacBook Pro laptop I bought not only got me through 4 years of university, but it was also the tool that got me a job selling apple computers for 4 years that funded part of my education. Why that means something to me, is that not only was it the main tool I used to graduate at the top of my class. That success helped me land my first-ever design job that in-turn lead me to meet my wife and later building a family in addition to starting my own design business. It’s a stretch, but that’s the perception and memory I will hold onto.
Could I have done it with another brand of computer? Of course. But when that laptop never died on me, the product had a great user experience and as a result, I developed an affinity for their whole brand experience. From their products, stores, product reveals and of course their best in class design. It’s no wonder Apple is continually my go-to choice over all competitors, even if they are considerably cheaper. It’s not habitual. It’s not preference. It’s a blatant disregard for even wanting to try and use another brand of competing product like Samsung or Mircrosoft. All because I feel tied to the memory and experience I’ve had with the Apple since 2002 and what it has done for my life and continues to do since I got my first iPod for Christmas that year as 13-year-old kid. Even picking up another brand of computer or operating system makes me confused and annoyed.
It may sound ridiculous, just like my salad dressing. But to me, that is genuine emotion and in my mind is nearly blind loyalty and fandom.
If you don’t believe me, I even camped overnight out the front of the Sydney Apple store back in 2010 for the iPhone 4. Yep, crazy! But to me, it was no surprise that customers who rate a company highly for their customer experience spend 140% more and remain loyal for up to 6 years.
Which is exactly what I do when I buy Apple — a memorable frictionless experience that I come back for, leaving me happy to pay more…or wait overnight for it in the cold 😅
ADVOCACY & CUSTOMER EXPERIENCE
Various research, albeit varied, shows that the results of a good customer experience and a bad customer experience determines the number of people a customer is likely to tell about their experience. But what was unanimous is that a bad experience results in up to double the number of people a dissatisfied customer will tell about their experience. Which means that to gain positive brand advocacy, a brand basically needs to ensure it provides a positive AND consistent experience.
A study by American Express identified that 33% of customers think about jumping ship to a competitor after just one instance of poor customer service. I wonder what the number would be after two negative experiences like I had with that salad dressing brand?
But the most head-scratching statistic I came across for this article was that 89% of companies recognise that the experience they offer their customers is a key factor for promoting customer loyalty and retention. Which in addition to 50% of customers being willing to purchase more frequently after a positive brand experience, it flies in the face of only 18% of companies who admit to focusing more on retention. Combine that with the following statistics below and you can only wonder why the majority of businesses aren’t also focused on their existing customers:
- 92% of consumers trust brand advocates they know
- A 12% increase in brand advocacy equates to a 200% revenue growth.
- Brands generate an average 650% ROI for every dollar invested in influencer and advocacy marketing
- Online businesses get 60% of their sales thanks to referrals from advocates
- As for content marketing, User-Generated Content (UGC) shared posts have a 28% higher engagement rate compared to standard posts. They are also 2x as likely to be shared.
The general point of brand advocacy is that when it’s nurtured and encouraged at the same time as a great experience is consistently offered, a brand has a much greater chance of brand/revenue growth when retention is combined with acquisition marketing.
REWARDS
Ever heard of the phrase, “under-promise and over-deliver”? I’ve lived by this for my whole design career and the same applies to any customer when a brand hopes to retain their customers if they aren’t expecting more than what they paid for.
The reason I say that is because rewarding a customer for their continued support, engagement, purchases, etc, does not need to be a discount. Interestingly, customers acquired with discounts actually have a low LTV. In fact, brands can even run the risk of devaluing their brand and its offering by discounting too much.
Which is most likely why you rarely see Apple discounting their products and instead focusing on the values and connection it shares with its customers, given that 64% of customers say that shared values with a brand are the catalyst for their strong relationship with a brand.
There are alternatives to discounts in either retention or acquisition marketing, as some of the following ideas can be used to promote loyalty and encourage advocacy:
- 41% of U.S. customers are loyal to brands that offer personalisation. Meaning you could offer engraving on a product as Tiffany’s do. Or simply use a customer’s name to personalise the experience at every branded touchpoint. Especially as 49% of buyers have made impulse purchases after receiving a more personalised customer experience.
- 37% of U.S. customers are loyal to a brand who support shared causes as Patagonia do. Where the reward to their customers is the satisfaction of helping others.
- Putting a brand’s employees first promotes brand advocacy. A greater level of customer satisfaction is achieved as a result of a valuing its employees. Starbucks saw an 11% increase in annual revenue by doing this in 2017.
- Offer advocates a referral fee for their advocacy. Affiliate partnerships can help generate more than 20% of annual revenue. It’s a win-win for both brand’s and advocates, especially for companies like Amazon who derive 40% of their revenue from affiliate marketing.
- Surprise your customers. It could be with freebies like upgrades on their flights or their subscription service. It could even be a personalised handwritten note thanking them for their valued support.
- While loyalty programs are heavily used in many consumer businesses, 81% of consumers believe loyalty programs make them more likely to continue purchasing from a brand and keep them tied to the brand. Just make sure it doesn’t take members to long to accrue and redeem points from the program to avoid abandonment.
- Don’t underestimate the power of feedback and testimonials. 88% of people trust online reviews as much as they trust recommendations from people they actually know. What’s more amazing is that if a brand implements a customer’s feedback, 97% of people are likely to become more loyal to a brand.
Short term vs. long term growth
Now the point of this article was to highlight the two schools of marketing for brand growth being acquisition and retention. Clearly, the lure of a great deal to get you on board with a brand is a tried and tested tactic. But as an existing customer, when you see that deal go begging to new customers only, you can’t help but feel undervalued. Which is why I wanted to know if there was equal or greater merit in retention marketing, which has proven to be so in the research I found and presented above, if executed well and with balance.
But what didn’t surprise me when looking into this was that more companies are more focused on acquiring customers. The shock was the disparity between the two levels of focus. However, what was most interesting is that it’s both a beneficial long and short-term growth strategy.
Short term, because of the lower barrier to entry cost to gain customers. But also long-term as customer loyalty grows with the brand’s growth. The other benefit to retention in the early stage is being able to calculate LTV that lets you determine, earlier rather than later, what strategies are best suited to customers achieving their LTV when it comes time for acquisition marketing.
On the other hand, acquisition and the desire for market penetration can be a suitable, yet aggressive marketing and brand strategy in the early stages of brand growth. However, the cost involved in acquiring customers on a low budget for most small or startup businesses is a limiting factor. Which is why acquisition is more suitable for brands looking to expand their customer base quickly but at a cost. Focusing on acquisition later in a brand’s journey means you’ll have developed a much better idea of who your customers are, how to cater to their needs and as mentioned before, more accurately knowing what their LTV is.
What may need consideration most, is what strategy your brand is going for. Is the goal to be the market leader in the short or long term? Is your brand goal more aligned with initial customer satisfaction or consistently positive experiences over time?
What can be done
We’ve all had good and bad experiences with brands. But with so much choice now in local, state-wide, national and global marketplaces, competition for attention and retaining it are two of the biggest factors in the success of a brand.
However what customers lament are things like being treated as another sale, not being offered the equal opportunity of offers or rewards for loyalty and a crappy or inconsistent customer experience.
One of the worst many of us will experience is that in order to get a better deal on things like your electricity, phone bill, mortgage or subscription service, we have to threaten to switch to a competitor for a brand to kick into gear to pay attention and help us out to keep you as a customer.
All of these things could be improved and learned from. But to say there is a one size fits all approach to brand growth is impossible. As it comes down to your offering, your market and your varied customer base. However, it would be nice to see a bump in brands, big or small, leveraging their existing customer base more for greater success, especially given that 65% of a company’s business comes from existing customers.
We know that all brands are not equal, so what is most important for brands to do, is to work with a team who can help understand who their ideal customers are and determine the best brand/marketing strategy that is tailored to their business and customer needs. It should be ever-evolving, but if there is a happy medium between acquiring AND retaining customers, a brand can become a loved, admired, purposeful, needed, wanted, talked about, memorable and of course, successful brand.
Reagan ‘Frank’ Mackrill, is a brand identity designer from Sydney, Australia.
To contact him, email: gday@gdayfrank.com
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SOURCES:
https://www.outboundengine.com/blog/customer-retention-marketing-vs-customer-acquisition-marketing/
https://www.invespcro.com/blog/customer-acquisition-retention/
https://www.itagroup.com/insights/want-generate-brand-advocacy-these-brands-show-you-how
https://www.csp.com/grow-loyal-customers-brand-advocates/#.X56VbVMza-t
https://www.convinceandconvert.com/online-customer-experience/customer-retention-not-acquisition/
https://www.customerthermometer.com/customer-satisfaction/csat-stat-of-the-month/
https://www.jitbit.com/news/customer-advocacy/
https://www.socialtoaster.com/advocacy-marketing-statistics/
https://www.metrilo.com/blog/customer-lifetime-value
https://99firms.com/blog/affiliate-marketing-statistics/#gref
