The digital business environment is hyper-competitive. Digital retailers whether e-commerce stores, content providers or app publishers need to continuously renew their marketing strategies, making use of the most performing channels and tools to grow and succeed. Online marketers use available data to define the best possible strategy and select the most performing “mix” of tools, channels, price policies and promotions in order to reach their goals, allocating budgets accordingly. A sometimes strongly debated, and way to often overlooked question is: “How much should digital businesses focus on acquisition vs. retention?”
One answer could be: “it depends”. In fact, it depends on many factors ranging from the stage of the company and of the market, the size of the business and other. It is also clear that a company will always need both to acquire customers and to retain them as much as possible. Without customer acquisition, there will be no customer to retain.
However, customer retention and loyalty are often not a priority for digital businesses, sometimes to the point of them being totally ignored. The reality is instead that focusing on retention can be very effective and cost efficient.
How much should digital businesses focus on acquisition vs. retention?
To answer this question let’s look at some data first.
Competition for advertising traffic is fierce. According to eMarketer:
- “Worldwide digital ad spending will reach $223.74 billion in 2017 and represent 38.3% of total paid media outlays. The format is expected to see double-digit growth through at least 2020.
- Mobile advertising will drive digital ad spending over the forecast period. This year, mobile will account for 63.3% of digital and 24.3% of total media ad spending. By 2021, it will grow to a 77.1% share of digital and 37.1% of total media ad investments.”
Digital is increasing consistently over other channels. This includes mobile that now represents much more than half of all digital advertising. Considering that not only online and mobile retailers spend on the digital channel, but also traditional physical stores are increasing their digital budgets, it is obvious that the channel is getting quite “crowded”. The consequential sky rocketing of advertising costs is making it difficult especially for smaller players to acquire users.
Acquiring a user online was three times more expensive in 2016 than 2013, as shown in research conducted by Hochman Consultants on a sample of companies purchasing ads through Google Adnetwork.
|Cost Per Click 2013||Cost Per Click (2016)||Cost per Lead (2013)||Cost per Lead (2016)|
|0.92 USD||2.14 USD (+132%)||10.50 USD||33.00 USD (+215%)|
The above cannot be representative of every single industry or business niche. But generally, most marketers would agree that acquisition is becoming more difficult and expensive.
Furthermore, Online companies face tremendous competition in terms of offer pricing (users can compare prices in just a few seconds, leading to price wars). “81% of shoppers conduct online research before making big purchases” (Retailing Today, 2014). Slashing prices and discounts can bring an immediate effect especially on the more price sensitive segments, but in the long term this is not sustainable.
So how much should digital businesses focus on acquisition vs. retention? Our answer is clearly: MORE!
Why invest more in retention?
Simple: “New business, but old rules work”. It is usually far more expensive to acquire new customers than to retain existing ones. In the 90s, for traditional businesses, acquiring a new customer was generally considered to be 4x more expensive than retaining one. With digital, things became even worst. Most experienced digital marketers would agree that today acquisition costs are about 6-7x those of retention
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