Loyalty Key Point #2

#2 Acquiring a New Customer Costs Far More Than Retaining a Good One

Research Shows That Customer Acquisition Costs 6–7 Times More Than Customer Retention

A Harvard Business School study also shows that increasing customer retention by just 5% can raise a company’s overall profit by between 25% and 95%. In other words, keeping loyal customers does not have to be expensive, but it can be extremely valuable.

Investing in customer loyalty may initially seem to benefit the customer—and it certainly does. A customer with more benefits is happier and more loyal. But loyal customers also benefit you and your business. In an earlier study, Murphy & Murphy demonstrated that reducing customer churn by just 5% could increase earnings by as much as 125%. Customer retention therefore creates value for both the customer and the business.

Why Is Acquiring New Customers Not Important?

Businesses may raise several objections when encouraged to focus on customer loyalty rather than lead generation. One is that it cannot be right to suggest that new customers are unimportant. Of course, that is true. The answer to the trick question above is therefore: “It certainly is important, but…” Many businesses underestimate the importance of that “but”. While it is logical that new customers generate more revenue, it is often overlooked that retaining customers does the same at a lower cost.

Despite these studies pointing to the enormous value of customer retention, businesses spend an average of 80% of their total marketing budget on generating new leads. In light of the statistics above, those resources could be used much more intelligently and effectively if invested in a modern, well-developed loyalty solution.

Retain Your Customers with Card-Linked Technology

Card-linked technology offers an effective way to retain customers without interrupting them with inconvenient membership cards or discount vouchers. Once they join the benefits programme, they are rewarded when they shop exactly as they normally would. Their payment card becomes their membership card, so customers receive their rewards without having to take any extra steps. In return, they reward you by spending more with your business. The dashboard also gives businesses access to useful data, enabling them to monitor who their customers are and tailor activities and new initiatives specifically to them.

The improved customer journey discussed in Loyalty Key Point #1 is a major step towards better retention. First, however, businesses must be willing to invest in retaining good customers, as well as acquiring them. Doing so also creates opportunities to build a more personal connection with customers, one of the foundations of loyalty. We explore this in Loyalty Key Point #3.