Everyone wants to attract new customers. Marketing executives routinely brag about how many new customers they’ve converted. However, acquiring new customers can be more expensive than retaining current ones. In fact, most companies lose about 10% of customers each year, and these defections negatively affect profits. Users who are retained by a company generate more total profit over their lifetimes. These consumers refer the company to others, may be more willing to pay premium prices, and make regular purchases.
The Marketing Funnel
There are several steps required to attract and retain customers. There is a marketing funnel that customers must move through before they become loyal customers. Making consumers aware of your brand allows you to say that they’ve heard of you. They move along to the Open-to-Trial stage and reveal they are willing to try your brand but have not done so yet. From there, the Triers have been persuaded to use the brand but have not repeated a purchase. There are Recent Users who have used your brand within the last three months. These are converted to Regular Users who also use other brands. These customers are drawn to using your brand the Most Often compared to other brands. And finally, these users are converted to Loyal users who always use your brand when available.
New Customers are Great— Current Customers Are Better!
The expenses incurred during the initial stages of attracting new customers—creating awareness and persuading them to try your product—can be enormous compared to retaining a recent or regular user. Satisfying and retaining customers through each stage of the marketing funnel are more cost-effective than trying to reach new customers exclusively. Once you have moved customers to the loyal stage, they may even help you reduce costs further by using word of mouth and influencing others to use your product. Retaining these loyal customers is more profitable than seeking new consumers. Reducing customer defections by 5% can increase profits by 25% to 85%. Therefore, despite the appeal of attracting new customers, it makes sense for marketers to focus on retaining current customers with whom you’ve already invested, and keep them satisfied for long-term profitability.
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— Robert Vergara
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