Customer Acquisition v Retention Promotions
Is a new customer worth more than a loyal long-time customer? Most research says no – in fact, it can cost 5 times more to attract a new customer. Why then are customer acquisition promotions better than customer retention promotions?
For over 25 years, my clients included major US automakers. When it was time to buy a car, my choices were self-limited to the “Big 3” that I was calling on in Detroit. I’ve been out of that marketplace for over 5 years, but still feel compelled to “buy American”. Because I’m not driving nearly the miles that I used to, three years ago I leased a car for the first time in many years. My lease is up in a couple of months and I’ve been barraged with reminders from my dealership AND from competitive brands. Why am I not worth more as a repeat customer than as a new customer? As a consultant to those who are developing consumer promotions, I’ve cautioned against this. As a consumer experiencing it, it’s even more annoying:
The conquest offers from other brands are much better than the loyalty offers from my brand.
Why is this so often the case? We tell each other stories all the time about calling a competitive company to get a better deal on phone, cable or internet and insurance services – to the point that we’re switching suppliers every year chasing a better price. There are “loyalty discount” from my car manufacturer, but the offers I’m getting from competitive brands are much better.
To be fair, there are some consumer companies that get it right by offering loyalty programs. Starbucks, DSW, Zappos, Wine Clubs (am revealing quite a bit about my habits here…). Maybe the phone, cable, internet and major manufacturers could take a lesson.
There is documented proof that it costs much more to acquire a new customer than to retain a current one. Why would a company offer a bigger discount to someone willing to jump brands than to someone who’s been a loyal customer for years? As someone who has asked this question of manufacturers for many years, I can tell you that I’ve never received an acceptable answer. Here’s a hint to those companies: it makes the loyal customer feels like a chump.
Offering a better deal to those willing to switch than to those willing to stay must work, right? Well, its going to work this time. I am changing car brands after 20 years to get a better deal – and I’ll probably do the same thing again in another 3 years. #notfeelingthelove