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Why Are Companies Investing in Customer Retention?

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Erika Morphy avatar
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Why does a company spend more money to retain a customer than to acquire one? The answer, simply put, is because it pays off.

A generation ago, when customer relationship management (CRM) was the newest hot application for companies, a chief selling point was the high cost of customer acquisition in comparison to retention. Ergo, the sales pitch went, deploy CRM — invest, in other words — to keep your existing customers happy.

One generation later and that message has clearly sunk in, although CRM is not necessarily the vehicle companies are using. Not only are brands investing in customer retention, but they are spending more compared to customer acquisition by a ratio of two to one, according to Gartner’s latest annual CMO Spend Survey.

Loyal Customers and Their Spending Habits

In many cases they are investing in their existing customer base because, simply put, it pays off handsomely. Loyal customers tend to spend more, Katrina Gosek, senior director of digital customer product strategy for Oracle CX Cloud told CMSWire. She points to a Forrester report that shows increasing customer retention by 5 percent can increase profits by up to 95 percent. The same Forrester survey showed that loyal customers spend about 30 percent more with brands than new customers, she said. An investment to increase retention by 5 percent is, to state the obvious, a worthy business investment.

Indeed, the Gartner report noted companies are investing in retention because it is a safer strategy.

Drivers of Customer Retention Investments

But there are other reasons why companies are investing in retention. Some of these are driven by the ever-changing market, others because the company has fallen behind the curve somehow. Companies are upping their investment in retention ...

Learning Opportunities

Because It’s Become Easier to Acquire Customers: Acquiring new customers has gotten easier as companies are able to leverage the internet and social media to market their specific products and services, Michael Mills, senior vice president at Computer Generated Solutions told CMSWire. At the same time, retaining those same customers has become more difficult, requiring a “personalized” experience, he continued. “A personalized consumer experience, along with technology-based customer services, is imperative to generating an emotional brand connection with each customer; this in turn encourages customers to become brand advocates and long-term buyers.”

Because There Are so Many Channels: “Businesses have struggled with customer retention in part because they haven’t kept up with how consumers prefer to be interacted with,” Merijn te Booij, Chief Marketing Officer at Genesys, told CMSWire. “Younger generations now expect to communicate with vendors the same way they do with friends or colleagues — quickly via text message, web chat and social media,” he told CMSWire.

Because the Company Hasn’t Optimized the Experience: “Digital-first businesses like Amazon and Zappos have structured their entire engagement models around optimizing experience, and have set the bar high across the industry,” RedPoint Global Chief Marketing and Strategy Officer John Nash told CMSWire. These companies have been able to forge a deeper customer understanding using data that is integrated, accurate and accessible, which ultimately ensures a seamless customer experience from start to finish, he said. “The Amazon and Zappos models should provide brands with a barometer for what customers expect from their loyalty — it’s a lot, and reasonably so.”

Because of Micro-Moments: “Customer interactions with brands are broken up into hundreds or thousands of tiny interactions,” Oracle’s Gosek said. “An average customer will look at her phone about 150 times in one day and will look at it for about one minute, which means you have a very short window in which to engage and capture attention.” Micro-moments are gaining currency among brands that are paying attention. 

Because Customers Are In Control Now: Customers today have abandoned the traditional ways of interacting with companies, Gosek said. “They’re creating their own customer experience. They are piecing this experience together via their preferred ways of interacting with a company and these ways can be infinite.” She tells of a luxury brand that entered the Chinese market. The brand had beautiful products and wanted its presentation reflect that beauty, Gosek said. But after it entered China the company realized customers were using WeChat for the transaction, which did not show off the design and experience on which the brand had worked so hard.

About the Author

Erika Morphy

New Orleans-based journalist Erika Morphy has been covering technology and its business implications for more than 20 years. Connect with Erika Morphy:

Main image: Ben White