Why Customer Retention is more sustainable than Customer Acquisition

In a world where consumer interest turns on a dime, when staying relevant is harder than ever and when the options are endless, retailers are seeking new strategies to grow and retain their customer base. 

While acquiring new customers will always be a necessity, retaining your existing customer base should never be underestimated. There are multiple reasons why customer retention is more sustainable than customer acquisition as a revenue provider. Leaning into retention is a protective business response, especially during a prolonged period of economic uncertainty.

Lower Costs with Customer Retention

Customer acquisition is expensive. In fact, it’s 5 times more expensive than customer retention. From marketing campaigns, advertising, and promotions all coming at ever increasing costs (without even including the innovation cost of creating new, engaging ways to attract those customers), you’re saying goodbye to a big chunk of your budget. 

Even after investing heavily in gaining new customers, there’s no guarantee that they will stick around. In contrast, retaining existing customers is far cheaper, with a greater return. After establishing a relationship with your customer and providing a fantastic experience, you can leverage your existing channels and resources to keep them engaged and coming back.

Loyal Customers Spend More

Loyal customers are not only more likely to make repeat purchases, but they also tend to spend more over time. Research has shown that loyal customers spend over 65% more on products and services than new customers do. It’s no surprise that although loyal customers only make up 20% of your customer base, they provide up to 80% of the overall revenue.

When customers have a positive experience with your brand and develop a sense of loyalty, they become more willing to explore your product/service offerings and make those larger purchases. This increased average transaction value contributes significantly to your revenue growth within customer retention.

At Ometria’s annual retail marketing conference Lifecycle, Sephora’s Head of Customer Marketing, Amy Smith, gave us some advice on how to build excitement 2 weeks prior to campaign launches. When brands educate their loyal customers on new products, tease campaign launches ahead of time and allow customers to sign up to waitlists, they build lasting relationships with their fan base.

By focusing on increasing metrics like repeat rate, average order value and lifetime value, brands can reap the rewards of multiple sales, with 59% of American consumers saying that once they’re loyal to a brand, they’re loyal to it for life.

Check out the Sephora x Ometria case study to find out how Amy Smith and the Sephora team saw a 10.8% uplift in AOV from their email channel with Ometria.

Referrals, Word-of-Mouth and Reducing Churn

Satisfied, long-term customers can be your most effective brand advocates. They are more likely to recommend your products or services to friends, family, and colleagues and this leads to high-quality, organic customer acquisition at no additional cost. If this teaches us anything, it’s that the customer experience is key to bringing new customers in, but also keeping them. 

Focusing on customer retention can help reduce your churn rate and the lower the churn rate, the more stable the revenue stream. By providing exceptional customer experiences and addressing issues promptly with great service while continuously improving your offerings, you can minimize customer attrition and protect your business from revenue fluctuations as much as the current economy will allow.

Strong Customer Relationships and Data-Driven Decisions

Building and nurturing relationships with your existing customers can lead to a deeper understanding of their needs and preferences and with 75% of American consumers saying they’re more likely to be loyal to brands that understand them on a personal level, true personalization has to be a no brainer. This knowledge is also invaluable when it comes to product development and your customer marketing strategies. By listening to your customers, you can tailor your offerings to meet their demands more effectively, ensuring long-term satisfaction.

Customer retention efforts generate a wealth of data, including customer feedback, purchase history, and behavioral patterns. Analyzing your data from your customer data and experience platform can provide valuable insights into your customers’ preferences and behaviors. These insights enable you to make data-driven decisions that improve and enhance the overall brand experience.

Brand Stability and Trust

Consistency in delivering quality products and the type of experience your customers want to shout about to their friends builds trust and that trust helps to keep your customers loyal, even in the face of competitive offers which stands you in good stead for commercial holidays while providing a great foundation for sustainable growth and long-term success.

While customer acquisition is part and parcel of business growth, investing in customer retention offers a more sustainable and profitable path forward. Lower costs, increased customer spend, referrals, reduced churn rates, strong customer relationships, data-driven decision-making, and brand stability all contribute to the longevity of your business.

By prioritizing customer retention, you not only secure your current revenue streams but also set the stage for continuous growth and prosperity in the future. Remember, it’s not just about acquiring customers; it’s about keeping them happy and loyal. 

3 Tips for Brands Looking to Drive More Retention

We spoke to Ky Ismet, Ometria’s VP of Customer Success, who spilled the tea on what it takes to exceed customer expectations to bring your customers back again and again.

“Keeping customers is the key to lasting success and we all know it’s more cost effective to retain than acquire. In 2024 and beyond, brands should focus on retaining existing customers by :

1. Delivering on your promises : we can understand so much more about consumers than we’ve ever been able to before but it’s still common that data isn’t leverage to drive better customer experiences. Deliver on the promise of a great experience when collecting preferences by providing the touch points consumers want from their favourite brands and create superfans as a result.
2. Trying new channels : so many retailers are gaining traction from SMS and App Push and it’s not just in the US. Brands need to let go of notions that certain channels don’t feel on brand or right for them and be open to trying them out – if in doubt ask your customers how they want to hear from you and meet them where they are.
3. Investing in loyalty : your VIP and loyal segments are the lifeblood of your business. Build a programme, whether it’s advertised as a value add or not, that rewards loyalty and surprises customers whilst also making it clear why the customer received such a reward – nobody wants a zombie discount!”

To find out how Ometria helps brands increase customer loyalty, speak to one of our retail marketing experts.