Retail Customer Acquisition Vs. Retention: A Zero-Sum Game?

It’s one of the eternal questions retailers face: Do we focus more on customer acquisition or on customer retention?

At first glance, the answer seems to be a no-brainer. Unless a retailer is totally new to the market — meaning acquiring customers is a matter of survival — retaining existing customers offers the double benefit of lower costs and higher returns. The cost of acquiring a new customer can range from five to seven times the expense of keeping an existing one. The probability of converting a new customer falls in the 5% to 20%range; for existing customers, it’s between 60% and 70%.

Yet despite these and dozens of other similar statistics, “Success for retailers and compensation for execs is often heavily tied to acquisition,” said Ernan Roman, President of ERDM Corp. “That is a mistake and drives the wrong behavior. Success has to encompass both effective acquisition and strategies which drive customer engagement and retention.”

Perhaps one of the reasons retailers focus on acquisition is that it offers quick wins and an easily measurable key performance indicator (KPI) for growth. In contrast, retention requires ongoing effort and a longer-term view of customer lifetime value.

While there may not be one fail-proof formula for effective customer retention, industry experts interviewed by Retail TouchPoints identified a number of key elements:

• Train front-line employees to focus on generating repeat business with every customer interaction;
• Provide VIP treatment for top customers to convert them into brand advocates;
Involve customers in “behind-the-scenes” processes such as product development to make them feel like brand stakeholders; and
• Build communities of interest to generate customer loyalty that goes beyond brand, price and product.

Personal Relationships Are Key To Retention And Loyalty

Retailers need to look at every customer interaction to maximize the retention opportunity, according to Richard R. Shapiro, President of The Center For Client Retention. “I get so frustrated with retailers because they don’t leverage the customers they already have,” Shapiro said in an interview with Retail TouchPoints. “They should be spending their money to train their staff and hire the right people. In almost all cases, even if an associate provides a good customer experience, they don’t go far enough to generate repeat business.”

Shapiro added that this process can be as simple as having the associate say to a customer (let’s call her Mary) after the transaction has been concluded: “Mary, I enjoyed helping you today. I know what you want now, and I would enjoy seeing you again. We’re having a trunk sale on June 23rd that will have items you might be interested in.”

“That’s where you continue the relationship; otherwise it’s just one transaction at a time,” said Shapiro. “The strongest bond is between two specific people — not the brand and the customer, not the store and the customer.”

Acquisition-Retention Combinations Resonate With Customers

Because Mizzen+Main was launched just five years ago as a performance dress shirt retail brand, to date most marketing efforts have been focused on customer acquisition. But the company’s organic growth model, which leverages referrals and high-profile customers such as Mark Cuban, means that customer retention is built into the brand’s overall acquisition efforts.

“Up until about eight weeks ago, many people were still finding Mizzen+Main through their friends,” admitted CMO Jen Lavelle in an interview with Retail TouchPoints. “That provides a lot of opportunities for…