We all know the old adadge that selling to new customers costs a lot more than selling to existing ones, so perhaps we should just stop chasing new ones – in these austere times that might make sense.
However, as I’ve mentioned here before (Customer Acquisition vs Customer Retention), it does seem that going after these expensive new customers is much more attractive than some boring direct marketing to exisiting ones. However, this blog is not about urging you to spend more time on your existing customer marketing (I’ll leave that for another day – as Chad Bauman says, “Want to get into trouble? Concentrate on new audiences” – so we’ll come back to that), but about how you should approach your new customer acquisition.
Just marketing to exisiting customers is a non starter – old customers go away or die and if you didn’t replenish the existing customer pot, you will soon run out of people to sell to. Remember, your existing customers were new customers once.
Part of the problem is that we think of marketing as a cost, something we have to spend money on and as such something to cut when times get tough. Marketing, done properly, is an investment. You are using some of today’s money to generate an income stream in the future. And that is the key and like all investments it needs analysis and decisions.
It is not enough to compare the cost of a sale to an existing customer to one to a new one. On a campaign basis that is always going to lose. What we need to look at is the lifetime value of a customer and use that information to identify the best source of future exsiting customers.and what ongoing activity is going to maximise the return. So get out those spreadsheets and start looking at your best existing customers and where to get more like them.
Lifetime Value is the key to good new customer marketing.
… oh, so I was talking about marketing to existing customers after all
I had an interesting conversation over lunch yesterday. We were discussing why new customer initiatives seem to be much more attractive to marketeers than customer retention activities.
Even though all our marketing eduction, and experience, tell us that it is much cheaper to sell to existing customers and patrons yet it seems that more effort is put into customer acquisition. That is not to say that customer acquisition is not important – it is the only way to grow a business over time. But by ignoring or just paying lip service to existing customer retention and development it makes new customer marketing nowhere near as efficient as it should be. If you are not actively marketing to your existing customers then how do you know the most profitable sectors targets to pursue for new customers.
By actively market, I mean continually profile and develop strategies for specific customer groups. Perhaps that is the problem – perhaps we have too much data to even get our heads around. Ideally, we’d market to our customers on a one-to-one basis, although that is not always going to be economic. Also, once we start this sort of analysis the faithful standard socio-economic categories just don’t cut it – that makes new customer marketing much harder. And the problem with tight segmentation in new customer marketing is the worry that you may lose some potential customers not in those groups – challenging.
So why? You will have your on views but a couple of things we discussed were: customer retention programmes are not as glamorous – it is the acquisition which has the advert budget; and retention programmes take a lot of analysis, thought and rigorous testing and refinement – a lot of detail. Perhaps it’s just the math.
Given today’s market place, hanging onto your customers is going to be critical. As budgets get cut, will it be new customer recruitment or customer retention that will feel the pinch first?