Retention vs acquisition: where is the value?

Groupon is shifting its marketing spend to focus on retention rather than chasing new customers to secure the future of the business – an essential shift if Groupon wants to avoid becoming a boom and bust style operation.

Rosie

The daily deals site’s growth so far has been exponential, reporting revenue growth of up to 1500% in some quarters last year.

But that level of growth is not sustainable and Groupon must shift its approach to avoid disappearing as quickly as it arrived.

It is not enough to have a huge number of sales, matched with an equally high churn rate. Groupon has to make sure that its retention strategy is powerful enough to make sure that consumers keep coming back.

Having 30 million customers each buying and redeeming one offer without reinforcing Groupon’s future role and giving customers a reason to make repeat visits and purchases is no good.

In the US, Groupon launched Groupon Now! as part of its efforts to do this. The mobile app offers even shorter-lived deals and offers on a location-based platform.

Deals are usually from restaurants offering lower cost deals on food between certain hours.

It is a way of engraining Groupon into consumers’s daily life and becoming part of every day behaviour in the way email, Facebook and Twitter have become engrained in daily online routine for many.

It is not just Groupon that has to think about adapting the balance between acquisition and retention strategies, although its situation is distinct.

The debate over which is more valuable or achieves highest return on investment is in no way new but at a time when social, economic and personal behaviour is changing so quickly, the right balance becomes crucial.

As a consumer, LoveFilm – now owned by Amazon, has long infuriated me for its incessant acquisition strategy. I’ve been a member for nearly five years, albeit on the most basic tariff, but even so, five years of consistent loyalty is not to be sniffed at.

I’m a loyal customer I like the service and I think it’s good value, but there is a growing resentment that LoveFilm doesn’t value my loyalty. Instead, it sees me as a pawn in its acquisition strategy. I regularly receive free gift cards to pass on to friends and family offering free trials of unlimited DVD rental and online streaming from LoveFilm.

In those five years, I have received, at most, two single free rentals as a thank you. By focussing on getting new subscribers, LoveFilm is missing the huge potential to upsell me on to a bigger package by showing me it’s worth it.

Particularly now that LoveFilm is facing increasing competition from new entrants like Netflix and on demand internet TV platforms from the likes of Sky and Virgin Media, it needs to think about how it can keep me on board and buying into more, rather than trying to get me to recruit my friends.

This situation is repeated across sectors and categories. because consumers now have so much choice where to shop and what to buy, it’s important that retailers and brands develop a strong strategy to encourage consumers not just to chose them once, but to keep on choosing them.

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