Commentary

Retention vs. Acquisition Strategies

Forbes Insights and Sailthru recently completed a global study of 300 retail and media executives to find out if, and how, they take advantage of the benefits of retention strategies and how that impacts growth and performance. It has been well documented, says the report, that it is much more cost-effective to focus on nurturing relationships with existing customers than it is to find and convert new ones. Edited and presented mostly verbatim, the survey reveals that while the benefits of retention are widely known, companies significantly underutilize them and routinely fail to make a strong connection between retention and its impact on revenue.

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In short, there is tremendous room for advancement for all companies to work smarter, not harder, says the report.

Definitions for Retention Gurus and Acquisition Athletes are detailed, with a breakout of vertical and geographic data for each segment.

  • Retention Gurus (14%)   Exceeding customer retention and customer acquisition goals; spend more on retention or equally on retention and acquisition; have increased retention spending in last 1-3 years
  • Acquisition Athletes (14%)   Exceeding customer acquisition goals; spend more on acquisition; continue to increase spending on acquisition
  • The Uncommitted (72%)   Have not skewed their budget allocations toward either acquisition or retention; have not experienced success with their customer acquisition and retention goals

The report analyzes companies that excel at retention, (Retention Gurus,) which were 14% of the sample, and those that focus on acquisition, (or Acquisition Athletes, 14%). The remaining 72% of respondents did not skew their budget allocations toward either acquisition or retention, and/or have not experienced the same success with their customer acquisition and retention goals.

The report also delves into the reasons why most companies still struggle to take advantage of retention’s benefits, the results this state of affairs can lead to, and key strategies to correct it.

  • Focusing on retention pays off. More Retention Gurus significantly increased market share over the last year (14%) compared to Acquisition Athletes (5%), while Retention Gurus scored better in terms of customer churn. 45% of gurus did not have increases in churn over the last year, compared to just 33% of Acquisition Athletes. In addition, 88% of Retention Gurus are exceeding their customer acquisition goals, says the report.
  • Inertia is what keeps most companies from becoming Retention Gurus. The primary factor in making decisions about retaining and acquiring customers is inertia, says the report. 84% of Acquisition Athletes report doing things “the way they have always been done” when defining customer strategy, compared to just 63% of Retention Gurus.
  • Companies have not shown signs of trying to break this inertia by investing more in retention. 79% percent of acquisition budgets increased over the last year compared to just 42% of retention budgets. Half of all Acquisition Athletes made no change to their retention budget.
  • Taking full advantage of customer retention strategies requires rethinking budget allocations, … and investing more in technologies that can help companies better achieve and measure retention goals. Currently, 37% of Retention Gurus and 35% of Acquisition Athletes cite technology limitations as a barrier, says the report.
  • Retention Gurus know they need to allocate more of their budget to retention. Lack of budget is a bigger barrier to measuring retention rates for them (23%), than it is for Acquisition Athletes (7%).

Being a Retention Guru comes with benefits. More Retention Gurus significantly increased market share over the last year (14%) as compared to Acquisition Athletes (5%). Of the total sample, says the report, most of the executives surveyed feel they are doing an outstanding job of acquiring new customers, as only 3 in 10 companies believe they are exceeding expectations for retention, while 8 in 10 believe they are exceeding expectations when it comes to acquisition goals.

Projected long-term profitability growth, despite being the foundation of survival for companies, did not break into the top five influences on customer strategy decisions for either segment, says the report. Notably, however, Retention Gurus are much more aware of the importance of this (40%) than their Acquisition Athlete colleagues (26%).

Retention Vs. Acquisition Considered When Making Decisions About Customer Strategy As It Relates To Growth (% of Respondents)

 

Retention Gurus

Acquisition Athletes

Insights from data and analytics

72%

65%

Inertia—we do it the way it has always been done

63%

84%

What we consider to be the industry standard/benchmarking

58%

81%

Experience of executive team

56%

58%

Projected long-term revenue growth

49%

47%

Projected long-term profitability growth

40%

26%

Projected short-term revenue growth

26%

23%

Projected short-term profitability growth

21%

26%

Source: Forbes, November 2016

One indication of the importance of retention and acquisition to customer strategy lies in how companies allocate their marketing budgets. Most companies spend almost equally between retention and acquisition, and over the past one to three years, this allocation has remained unchanged or only slightly increased. Whether this change is caused by inertia or having a better handle on spending for retention, the vast majority of budget increases were on the acquisition side—four out of five companies increased here, whereas only two in five increased retention budgets.

The Top Two Barriers To Investing More In Customer Retention

Barriers

Retention Guru

Acquisition Athletes

Inability to measure ROI of retention tactics (other than technology)

42%

33%

Technology limitations

37%

35%

Company’s business model or strategy focuses on acquisition over retention

28%

35%

Lack of understanding/buy-in from executives, the board of directors and/or shareholders

28%

35%

Lack of expertise on the marketing team

23%

19%

Lack of budget

23%

7%

Organizational structure does not support it

19%

37%

Source: Forbes, November 2016

Concluding, the report says… “Given that retention-focused companies show greater increases in market share than their acquisition-focused colleagues, and given that retention-focused companies over perform in both retention and acquisition, it is critical to evaluate your current customer strategies”:

  • Focused enough on retention
  • Technologies needed to deliver a modern customer experience
  • A leader who drives success in this modern era

 

The study and report are COPYRIGHTED © 2016 Forbes Insights, and based on a survey of 300 retail and media and publishing executives conducted in March/April 2016 by Forbes Insights.

 

 

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