On this episode of Truly Social, Tara Hunt breaks down – using facts and figures – why retaining your existing customers is so much more important than new customers.
To add some nuance to her perspective, Kevin Hillstrom of Mine That Data calculates annual repurchase rates to define the type of relationship the business has with its customers.
According to Kevin, if <40% of buyers will make another purchase this year, you are in acquisition mode and you need more customers.
Hybrid mode is between 40% – 60%. Here, you need to focus on getting new customers, while also increasing purchase frequency of existing customers.
If >60% of your customers will make another purchase this year, you are in loyalty mode. Here, the firm should focus on increasing purchase frequency and loyalty of existing customers.
Overall, most mature businesses don’t make it to loyalty mode – only about 10%, in fact. This is the phase businesses should strive for. Customer acquisition costs are relatively low and more profit flows through to the bottom line.
Your customers are saying…
In Tara’s example, the grocery chain would likely fall into a hybrid or mature relationship with their customers. As such, maintaining and growing existing customer loyalty should be a top priority. However, by excluding existing customers from the promotion, the grocer effectively reduced her loyalty to their brand, which would seem counterproductive.
The company may be making a calculated decision. Tara’s cost to switch to another grocer may be higher than the relative negative impact from the failed promo. Or so they think. However, eroding existing-customer loyalty does have negative consequences and are likely not worth the relatively minor cost of extending a new-customer promo to existing customers. In this case, the firm can rebrand the promo as a customer loyalty benefit.
While Tara may not be able to outright switch to another grocer, she may take certain high-ticket purchases away from the grocer and buy her wine from the local wine shop, cheese from the artisanal fromagerie down the street and be more inclined to try services from Amazon or Blue Apron, further penalizing the grocer for their faux pas.
Don’t select Amazon Prime Air…
The firm must understand the frequency of business from their existing customers and avoid futile, unprofitable decisions. Otherwise, they’ll perpetually find themselves in need of new customers, which is a surefire way to go out of business.
“Release the hounds!”