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Customer Acquisition or Retention?

At the core of any good marketing strategy is your customers: who they are, what they want, and how to reach them. This leads us to a common question amongst marketers: should I be prioritizing customer acquisition or retention?

The short answer is both. But when deciding how to allocate your marketing budget for customer acquisition and retention, it’s a bit more complicated than that. Let’s take a closer look at the role both of these metrics play and how you can leverage them for long-term growth.

What is Customer Acquisition?

Customer acquisition is the process of gaining new customers. It is most commonly measured through Customer Acquisition Cost (CAC), which can be found by dividing the marketing dollars spent on a campaign or during a specific time frame by the number of new customers brought in. Marketers use CAC to judge the effectiveness of their campaigns in reaching and acquiring new prospects. Customer acquisition strategies guide prospects through the sales funnel, from awareness all the way to the purchase decision.

What is Customer Retention?

Customer retention is the other side of the coin; once you acquire new customers, can you keep them? This concept focuses on nurturing relationships with your existing customer base to stoke long-term loyalty. The standout metric here is Customer Lifetime Value (CLV), or the predicted total revenue a business can get from a customer over a projected period of time. Customer retention strategies aim to improve CLV and encourage repeat purchases.

How Do Customer Acquisition and Retention Drive Growth?

Both customer acquisition and retention are critical for driving business growth. Customer acquisition strategies grow your customer base while retention-based initiatives increase CLV. Without customer acquisition, you would have no customers to begin with. Without retention, you would be in a constant battle to find new customers.

So, you need both customer acquisition and customer retention. That said, many businesses have a tendency to overlook the importance of retention, funneling the majority of their resources into acquisition. This can be harmful to their long-term success, as they could end up losing customers faster than they can acquire new ones.

When thinking about customer retention vs acquisition, consider these factors:

  • Speed of Results: For retention, it takes longer to see evidence that your efforts are working because metrics such as CLV are measured over time. When you’re looking for a new customer to convert, it’s easier to see evidence of gains sooner, which is one reason many marketers place such an emphasis on acquisition. But to encourage long-term progress, you also need a strong retention strategy in place. With a customer retention program, it will take time for your efforts to yield results, but your efforts ultimately pay with even greater returns.
  • Difficulty: Customer acquisition delivers faster results but usually takes more effort because you are starting from scratch. You need to not only find new customers and get their attention, but you also must convince them of your product’s value. In contrast, retention provides more long-term gains but usually takes less effort because you already have a foundation to work from. As long as the initial purchase went well, it is typically easier to convince them to buy again. Repeat customers convert 9x more than first-time ones, so you can see substantial financial gains just by keeping your current customers satisfied and engaged.
  • Cost: Because retention focuses on current customers, it is more cost-effective. In fact, acquiring a new customer can cost five times as much as retaining an existing one. And this lower customer acquisition cost doesn’t mean a small ROI either; a 5% increase in retention can increase a company’s bottom line up to 95%. In contrast, acquisition strategies generally cost more, especially if you use traditional routes such as paid advertising. You can lower customer acquisition costs with strategies such as identity marketing that focus on targeting high value customers who match well with your brand.
  • Word-of-Mouth: An added bonus of customer retention: when customers are loyal, they tell their friends and colleagues about your brand. Word-of-mouth is particularly strong when a brand targets specific consumer communities with an exclusive offer; more than 95% of students, teachers, healthcare workers, first responders, and military members will share an offer with others they know are eligible for it. This gives you a free visibility boost and helps you acquire new customers.


How Zero-Party Data Ties Into Retention

Customer acquisition and retention both require quality data. Good data helps you understand your customers on a deeper level so you can deliver messaging and experiences that will appeal to them. For acquisition, targeting the communities most relevant to your brand will help you lower acquisition costs by focusing on customers who are more likely to convert.

For retention, good data allows you to more effectively personalize your offerings to your customer base. So, if you know that a good portion of your customer base are students, you can tailor product recommendations, content, offers, and messaging to that specific audience. Customers are more likely to stick around when they see that you recognize what makes them unique.

Verified zero-party data can be collected directly from customers through a variety of methods, including surveys, quizzes, loyalty programs, and offer forms. To ensure your data is accurate, be sure to verify it using authoritative data sources.

How to Create Customer Loyalty

Generating a strong sense of customer loyalty is key to improving retention metrics. Here are some of the most effective ways to do this:

Re-Engage Customers

After a customer converts, you need to find strategic moments to re-engage them to keep your brand—and their next purchase from you—top of mind. For instance, NASCAR’s customer retention strategy uses retargeting as they get close to events to remind customers of what’s next. Other brands re-engage customers during relevant holidays, like Teacher Appreciation Week or Military Appreciation Month.

Establish a Loyalty Program

Loyalty programs are a great way to keep your customer base engaged by rewarding them with perks such as discounts, rewards points, free merch, or advanced product releases. Consider arts and crafts retailer Michaels. The brand tied its loyalty program, Michaels Rewards, to its personalized offers, making it easy for members to verify for discounts. As a result, Michaels verified 200k seniors, teachers, and military members.

Incorporate Customer Feedback

Your brand can gather customer feedback through surveys, quizzes, and other forms. To demonstrate that you value your customers’ opinions, use that feedback to sculpt the customer experience. Customers are generally more than happy to share information when they know it’s being put to good use.

Maintain Privacy-Friendly Data Standards

Privacy concerns are top of mind right now. Not only are regulations such as the GDPR cracking down on privacy violations, but consumers are more cautious than ever about how they share personal information. Research shows that 70% of consumers said they would no longer do business with a company if it gave away sensitive information.

Build trust with your customers by demonstrating you care about the security of their data. You can do this by focusing on zero-party data, which is gathered directly from the customers in exchange for something of value. When consumers see that you are only gathering minimal data and using it for good purposes, they will feel safe and are more likely to continue the brand relationship. Partner with a reputable verification partner to protect against fraud and keep your customers’ data safe. A good verification service will also only collect basic information from your customers and will ensure that none of their data is sold, shared, or used without their consent.

Give Exclusive Offers to Key Customers

Personalized offers for specific consumer communities—such as healthcare workers or the military—generate goodwill because it shows that your brand cares about the identities of your customers. In fact, over 60% of healthcare workers, military members, and teachers say that a personalized offer makes them feel valued. This creates an emotional connection that encourages brand loyalty.

For example, nutrition brand Gainful decided to target student and military communities with exclusive discounts. With students, the brand was already acquiring them at a high rate but was struggling with retention. Gainful saw impressive results after launching these campaigns; there was an 18% lift in first month retention for students and a 25% increase for military. They have also gained some incredibly loyal customers who happily advocate for the brand.

Boost Customer Acquisition and Retention with Identity Marketing

Identity marketing is a new marketing strategy that drives effective customer acquisition and retention. With identity marketing, brands attract new customers by giving the communities they belong to an exclusive offer. They retain those customers by using the zero-party data customers provide to re-engage them with personalized marketing that encourages greater loyalty. Identity marketing has helped brands see conversions increase by 6x and renewal rates of 75%.