“If customers feel seen and understood, they’re likely to be loyal”, a recent article from Entrepreneur states. “Data powers the future of customer engagement”, reads another.
Open another random business news website and there’s a big chance you’ll come across another article stating the competitive power of data to boost retention amongst customers.
But even though this awareness is growing, the genuine belief in marketing remains: growth equals new customers.
And while this is true, new customers aren’t the only gateway to growth. Companies that want to be profitable in the long run, shouldn’t just focus on acquiring new customers, but also prioritize investment in existing customers and learn how to master the art of retention. To back this up, let’s have a closer look at 3 macro trends that influence this.
1 . The numbers to back this up don’t lie:
- Attracting new customers costs on average 5 x more than keeping an existing customer. (Bain & Company)
- Companies that increase their customer retention by just 5% experience a profit increase of 95%. (Bain & Company)
- In general, 40% of an e-commerce website’s revenue is generated by only 8% (repeat buyers) of its customer base (Adobe)
- The top 3% of customers spend 3x more on average than other customers. (RJ Metrics)
So it is not surprising that a growing number of successful companies resort more to retention strategies these days as the marketing landscape is changing at lightning speed.
2 . Increased Competition
One thing that is changing is the budget companies allocate to online. According to research firm Forrester, the average companyn allocated an average of 42% of their marketing budget to online in 2018. This percentage is set to grow to 45% by 2020 (Forrester, 2018). As large advertising platforms are basically open auctions, an increase in demand for ad clicks increases CPC costs and thus ‘Customer Acquisition Costs’.
In layman’s terms, investing your money online to find new customers is no longer as cheap it once was and every acquisition is more expensive than the previous one. This makes that maximizing average customer lifetime value with the help of retention strategies has become increasingly more relevant.
3 . Age of the Spoiled Customer
Thirdly, customers have regained control: as the internet provides easy access to tremendous amounts of information, people have been taking advantage of that to become smarter shoppers. They’re used to getting what they want, when they want it. They’ll switch providers/companies within the flip of a switch when a discount code passes. As this is a trend that is here to stay, the importance of being able to preserve the attention of a customer in the long run, and thus the importance of having a well thought through retention strategy, grows.