Future of CX

Acquisition V/S Retention: The WAR is on

Jeremy DSouza
.
Jul 18
.
7-8 mins

Table of contents

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Acquisition Vs Retention

44% of companies focus more on acquisition than on retention. Only 18% have a greater focus on customer retention than on customer acquisition. Which of them are on the right track? Which ones need to fix their priorities? 

Let’s find out!

What is customer acquisition?

Customer acquisition is all about hunting for new customers and bringing them into the fold. It focuses on having powerful lead generation strategies to turn prospects into customers. You can’t really run a business without customer acquisition, you’d just go broke.  

Customer acquisition helps you earn more revenue and enables you to provide proof of business growth.

To step up your customer acquisition game, you need to understand your customers’ needs and their pain points. You also need to understand the customer journey and see how you can help your customers flow through it. 

Your business can’t grow without you acquiring new customers. But you also can’t really grow how you’d like to without having the right customers. So, one of the most important things you gotta do is figure out and clearly define who they are. These are the ones you need to focus your acquisition efforts towards. If you do end some seeing a few customers who don’t fit your customer, sure, you serve them, but you don’t completely shift your marketing efforts to resonate with them, especially if they make up a minuscule fraction of your customer base.

What is customer retention?

This is what comes immediately after customer acquisition. If you don’t have a good retention strategy in place, you might find yourself losing all those customers that you spent so much effort acquiring.

Customer retention essentially involves driving repeat purchases and reducing customer churn rates. It sounds easy, but it isn’t always. It can’t be a price game, because anyone can come along at some point and sell a very similar product at a lower price. To be great at customer retention, you need to create experiences that make your customers want to stick around and keep doing business with you.

Customer retention is what makes your business sustainable. Without it, you might even find your customer lifetime value to be less than your customer acquisition cost.


Is customer acquisition better than customer retention?

Customer acquisition is extremely important. Your business would not be able to earn enough revenue without a good customer acquisition strategy. Does that mean it’s more important than customer retention? 

Nope! Not a chance. 

Try this (or rather, don’t) - Spend 99% of your resources on customer acquisition and only 1% on retention. Any idea what’s most likely to happen? Most of the customers you strove to acquire would say ‘Goodbye’ after the first few purchases (or maybe, after the first one itself). You’d be spending all your energy trying to find new customers to make up for the ones that you’re continuously losing. It’s pretty much the cycle of business death.

You’d be burning money trying to acquire those leads, especially because it costs five times more to acquire new customers than it does to retain your existing customers. You’re also 60-70% likely to make a sale to an existing customer, while you’re only 5-20% likely to make a sale to a new one.

Need more stats?

Okay, I’ll keep them coming!

According to research by Bain & Company, increasing your customer retention rate by 5% could increase your profits anywhere from 25-95%. But that’s not all. 

Loyal customers are 5 times more likely than new customers to make repeat purchases, 5 times more likely to forgive your mess-ups (nope, this is not an excuse for you to drop the ball on any part of their experience), 4 times more likely to refer you to the people in their circles, and are 7 times more likely to try a new offering that you launch.

But what would you lose if you didn’t have a strong focus on customer retention? Well, if you deliver even one negative customer experience, 33% of customers would consider switching to a competitor. In fact, American companies loose $136.8 billion every year because of their customers ditching them for a competitor. And the sad part is that it could have been avoided rather easily by just creating a sound customer retention strategy.

Why businesses focus only on customer acquisition?

Of course, you’re wondering why that happens. Why would anyone in their right mind focus entirely on acquisition when they know that customer retention is equally, if not more important. Here’s why that tends to happen.

1

Vanity metrics

Good Customer acquisition costs could make you look good on paper. More leads, more website traffic, more daily active users… these numbers allow marketers to show stakeholders how successful they are. It lets the marketing team prove that their efforts are paying off (even if the reality is that they’re reeling fish in and allowing them to easily roll back into the pond with no resistance). 

It's a facade, such companies seem more interested in looking like than winning rather than actually winning. They’re fooling themselves by faking growth when they might actually be stagnating (or worse, falling).


2

Quick wins

Customer retention is all about increasing the customer lifetime value. It focuses on playing the long game. It may take years to bear fruit. But if the business needs immediate results, it needs to focus on getting quick wins through customer acquisition. 

But more often than not, you see businesses focusing way more on acquisition than they should, even when they aren’t in a desperate position. They’re looking at it as instant gratification. So closing two new deals still makes those marketers feel great about themselves, even if three customer schurned.

They aren’t bothering to find out whether they are using their resources appropriately or whether their behavior would benefit in the long rin.

3

Can’t completely control retention

There are quite a few factors contributing to defection that are outside the company’s control. For example, a child could pass out of high school and the family would stop buying the vast amount of stationery supplies that they used to for years. A patron of your cafe could shift to another city and you’d lose their business, no matter how good your customer experience is.

But the fact is that these situations are outliers. A very large number of defections that take place occur because of factors that are completely in the control of the business, especially the customer experience. 

Saying “I can’t control everything, so I’m not going to bother about it” is not a valid excuse in any way. As we mentioned earlier, 33% of customers would ditch you because of a single negative customer experience, and guess what, that’s very much in your control.


Acquisition V/S retention - What’s most important for your business?

Acquisition and retention are both very important, but there are situations where you might want to focus more on one of them.

1

Startups

When you’re just starting off, you would want to focus more on acquisition. After all, whom are you going to retain if you don’t have any customers at all. But you can’t ignore retention, or else you’d lose the few customers that you acquired and have to double down on acquisition again. Then it’d turn into a cycle and you don’t want that to happen. Focus on acquisition, but make the efforts necessary to retain those customers whom you acquired.

Acquisition is also rather important for startups because they need to show their stakeholders that the business has growth potential.


2

Well established enterprises

You’ve already got a large customer base and you need to focus on retaining them. Slip up and they’ll be talking negatively about you to everyone they know. Deliver great customer experiences and focus on doing right by them and you’ll end up getting free marketing from them via word of mouth.

Essentially, customer retention won’t just increase your customer lifetime value, it could even help you acquire more customers passively.


3

Organizations on a tight budget

If your organization is trying to succeed while on a budget, you’d want to focus on retention rather than acquisition. Retention will bring your a better ROI on your marketing spend. As mentioned earlier, it costs 5x times less than acquisition and simply raising your retention rate by 5% could increase your profits by upto 95%.

It’s the best option when you don’t have a particularly large budget.

How can you increase your customer retention?

1

Answer customer queries faster

Don’t leave your customers waiting for you to find them to answer their questions. In an ideal situation, you’d want to reply to them as soon as they ask the question. 

The good news is that this ideal scenario is quite realistic. With an AI-powered chatbot, you can not only answer customer queries instantly, you can answer them on their preferred channel (WhatsApp, Facebook Messenger, etc.), and in their own language.


2

Create a better overall customer experience

Do everything in your power to deliver experiences that make your customers want to stick around. Collect feedback from your customers and act on it so that your customers can see that your care about their opinion and are striving to solve the issues they’re facing.

Personalize the content that you send them. It should be relevant to them and help them solve an issue that they’re facing. Don’t just try to upsell them all the time, give them value.

Act proactively to solve issues before they arise, thus getting rid of all bumps in the customer journey and streamlining their experience.

3

Subscription plans

If you sell products that customers would tend to purchase after fixed periods, like protein supplements or printer cartridges, give them an opportunity to avail of a discount by opting in for a subscription plan. It’s a win-win situation - you get the assurance that your customers will stick around and your customers get to save a bit of money.

4

Loyalty programs

Creating a loyalty program is a great idea. And they’ve been used for more than 300 years, so something’s got to be right about them. The question is, how can you make it better and easier for your customers? 

Simply saying ‘Make 4 purchases and you’ll get 70% off on your 5th one’ isn’t good enough. You need to get your customers emotionally invested in your loyalty program. That’s where gamification comes in.

Creating a leaderboard, setting up levels, and awarding badges would help you do that. It would play on your customers’ competitive nature and make them want to progress, level up, and earn badges. You could even award additional rewards and benefits to customers who progressed past a certain point, especially for your top customers. You’d want to give your customers the opportunity to unlock rewards.

Now, let’s talk about making it easier. You could integrate your loyalty program with your chatbot, allowing your customers to earn and redeem loyalty points directly over your bot on WhatsApp (or whichever channel they prefer) instead of forcing them to visit your website.

Jeremy DSouza

Jeremy is a marketer at Engati with an interest in marketing psychology and consumer neuroscience. Over the last year he has interviewed many of the world's brightest CX, AI, Marketing, and Tech thought leaders for Engati CX.

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