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GLOVES OFF: Focus spend on retention or acquisition?

Donovan Neale-May
Founder and executive director, CMO Council
President, Neale-May & Partners
30 years in interna­tional marketing

When discussing the impor­tance of customer acquisition, an important distinction is whether these new customers are replacing lost customers or adding to your existing customer base.

Part of the problem in today’s mar­keting strategy is a churn issue. Too many companies are worrying about doing lead-generation campaigns and not paying attention to what kind of customers they want to attract.

It comes down to analytics. Discover what customers you have, look at the trends and the data. Before you go out and determine how much you will spend, you have to do your homework. It’s not just “spend 30% on retention, spend 70% on acquisition,” because you could be spending 80% on cus­tomer acquisition and losing 10% of your customers to churn. What types of churn rates do you have? Can you penetrate deeper into a particular segment of your customer base rather than target randomly?

Drill into the factors that shape acqui­sition and retention. Find out who you are doing business with, segment out which of those customers provide the most business value and which custom­ers belong to a base that could be fur­ther penetrated. Acquisition strategies must be driven by in-depth analytics that are derived from customer history, intelligence and insight.

The problem with a lot of acquisition spend is that it’s all about collecting business cards and not necessarily de­termining if they are the right types of opportunities, whether those opportu­nities are ready and primed to make a spend decision and whether they have a sense of urgency and a desire to do business with you.

Tom Cates

President and founder, The Brookeside Group
Published research on measuring customer loyalty

In many respects, I think that customer retention today is vital. For many companies, it’s probably the only way they can compete. Most companies do not have the leverage of Wal-Mart’s low prices or Apple’s product innovation but they make very good products — the only thing left to differentiate them from competitors is getting close to their customers.

At the end of the day, growing a business is pretty simple, you’ve just got to get money from your customers. You can spend money on whatever you want, but there’s only one place that you’re going to get money.

The challenge is when you want to start allocating a budget to somebody for customer retention. Customer retention doesn’t usually belong to anyone specifically in the organiza­tional chart. You can have a massive sales force out there spending money on marketing to attract new customers — like filling a tub from the top. But you may find customers are drain­ing from the bottom. If you plugged that drain, you would see how fast you could fill up the tub. But nobody owns the drain, so deciding who to give money to and who to take it away from can be difficult.

It often comes down to enlightened management. You’ve got to get some­body willing to fight the battle and get teams to work together.

Customer retention is critical for growing young companies as well as mature businesses. In the Internet environment, when a company is first seeing acceleration, customer care is critical. When you are a mature busi­ness with a large customer base, you’ve got to protect your customers from being poached by competitors.

Both experts agree that your current customer is your most valuable. Cates argues customer retention spending is the only way to plug a leaking tub. Neale-May says smart customer acquisition spending may be the way to grow a business, though warns that it will only be successful through an understanding of the current customer base and your product’s sales cycle.

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