Are old friends better than new ones?


Research from insight group SMG published this week revealed that retailers spend more time and marketing budget recruiting new customers than they do on retaining their existing customers – something of a short-sighted plan.

Customers are quite obviously the core of any retail business but how do marketers decide who is more important – the new customer or the old?

According to the research, retailers are expected to spend 64% of their marketing budget on new customer acquisition by 2015 – this is despite the fact that long-term loyal customers are more profitable in the long-run.

A common complaint in the financial sector is that new customers get all the good deals on credit cards, mortgages and loans as banks try to entice new members while the old faithful customers that have remained loyal get nothing of the sort.

The research found that more than half of retailers are prepared to spend more money on acquiring new customers but are not committing enough resources to looking after its current customers and increasing customer loyalty.

If retailers focus too much on customer acquisition they run the risk of alienating loyal customers and creating a cycle of churn that sees customers come and go as if through a revolving door.

If recruiting new customers is ignored and too much is spent on rewarding existing customers a business will stagnate.

The trick is to reward loyal customers with good deals and added value at the same time as enticing new customers with offers that will turn them into loyal ones – something that can’t be achieved with a generous introductory offer or slashing prices alone.

There is an old quote from US author Elmer G Letterman that says: “There is only one thing better than making a new friend, and that is keeping an old one.”

It seems that retailers, and indeed any consumer organisation, would do well to remember that.

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