Customer retention and acquisition are two important aspects of relationship marketing that focus on making long-term relationships with customers rather than emphasizing on shorter term goals. The key difference between customer retention and acquisition is that customer retention is the actions taken by companies to ensure that the customers continue to purchase company products in the long term by safeguarding them against competition whereas customer acquisition refers to obtaining customers through marketing strategies such as advertising. Research has found that it is 5 to 6 times more expensive to acquire a new customer rather than retaining existing customers.
1. Overview and Key Difference
2. What is Customer Retention
3. What is Customer Acquisition
4. Side by Side Comparison – Customer Retention vs Acquisition
What is Customer Retention?
Customer retention is the actions taken by companies to ensure that the customers continue to purchase company products in the long term by safeguarding them against the competition. Here, the objective is to retain as many customers as possible, often through customer loyalty and brand loyalty as it is cheaper than the effort to acquire new customers. Customer retention can be practiced in following ways.
Strategies for Customer Retention
Extraordinary Customer Service
Constant focus on improving quality assists companies to retain customers without excessive advertising and marketing strategies. Thus, businesses should always attempt to reduce defects and product recalls. Furthermore, satisfied customers also spread positive word of mouth. Since ‘satisfied customer is the best advertiser’, providing a high quality service help to improve sales.
E.g. Ritz-Carlton hotels are popular for providing a very good and personalized service for customers who stay at their hotels.
Since maintaining existing customers is less costly than acquiring new customers, market penetration strategy becomes a useful strategy to use in such a context. This involves focusing on selling existing products or services in existing markets to gain a higher market share.
E.g. Coca-Cola has expanded by entering into many markets. However, it is experiencing ever increasing sales volumes since they continue to offer their existing products to existing customer base.
Customer Life Cycle Value
Customer life cycle value is a marketing concept that emphasize on maximizing profit from a customer over a long period of time. Customers may take the time to get familiar with the company’s brand and products and will consume more as they gain more trust about the products via direct consumption experience. This usually takes time. Thus, companies should not think of the short term but focus on the long term profitability.
E.g. HSBC offers a number of loans for their customers who are in different stages of life. Their strategy is to attract the customers who are at a young age by offering them student loans and auto loans and retain them by offering other types of loans such as mortgage loans at later stages in life and earn higher interests.
This is a marketing strategy in which the name, design or logo of an established brand is altered with the intention of developing a new, differentiated identity in the minds of consumers.
E.g. A couple decades ago, Burberry suffered a negative reputation as their clothes were perceived as gang wear. In 2001, the company started introducing new products such as swimwear and trench coats that are not coherent with the perception of gang wear. The company also endorsed celebrities to transform the image of the brand in order to associate it with high class and wealth, which proved to be very successful.
This is a marketing technique that is focused on offering new products to existing customers. Many multinational companies implement this strategy by continuing to introduce and market new products. Sometimes they introduce new product categories altogether. For a product development strategy to be successful, the company must have a strong brand name.
E.g. Sony started business by producing Japan’s first tape recorder and gained much popularity by introducing a number of microelectronic items to the same customer base.
What is Customer Acquisition?
Customer acquisition refers to obtaining customers through marketing strategies such as advertising. These are customers that have not used the company’s products before; thus increased efforts should be made to encourage them to purchase company’s products. Heavy advertising budgets should be in place in order to acquire many new customers. Market development and diversification are two widely applicable strategies for customer acquisition.
Customer Acquisition Strategies
Market development refers to offering the existing products to new markets in search of new customers.
E.g. In 2013, Unilever entered Myanmar in order to expand their market reach and to increase revenue.
Companies can improve their economies of scope by diversifying into new markets in order to acquire new customers. This also helps businesses to minimize business risk.
E.g. Mars company, which originally produced chocolates and candy, entering the pet food market.
What is the difference between Customer Retention and Acquisition?
Customer Retention vs Acquisition
|Customer retention is the actions taken by companies to ensure that the customers continue to purchase company products in the long term by safeguarding them against the competition.||Customer acquisition refers to obtaining customers through marketing strategies such as advertising.|
|Advertising and Customer Management Expenses|
|Advertising and customer management expenses are low for existing customers since they are familiar with company products and processes.||Since new customers are less familiar with company products and processes, it is much costly to obtain them as well as to manage them.|
|Market penetration, rebranding and product development are key strategies that assist companies to retain customers.||Companies can acquire new customers by way of market development and acquisition.|
Summary – Customer Retention vs Acquisition
The difference between customer retention and acquisition mainly depends on whether the company is focusing on serving existing customers or keen to acquire new customers. Some companies may be interested in both; however, they should understand that it is more expensive to acquire a new customer than retaining existing customers. Even though efforts are focused on acquiring new customers, businesses should not ignore the prevailing ones since they can, in fact, help the company to attract new customers through positive word of mouth.
1.Morgan, Robert M., and Shelby D. Hunt. “The Commitment-Trust Theory of Relationship Marketing.” Journal of Marketing 58.3 (1994): 20. Web.
2. “Customer Acquisition vs Customer Retention.” Study.com. Study.com, n.d. Web. 25 Apr. 2017.
3. “Ansoff Growth Matrix – Four Ways To Grow A Business.” Differentiate Your Business RSS. N.p., n.d. Web. 25 Apr. 2017.
1. “Emma-Watson-Burberry” by j_10suited (CC BY 2.0) via Flickr
2. “Whiskas Range” by Chris Dorward (CC BY 2.0) via Flickr