Which is a better strategy: Customer acquisition or customer retention

Anil MenonUpdated: Sunday, September 27, 2020, 12:10 AM IST

If you have read my earlier piece, you will be aware that I had discussed acquisition and customer retention strategies. For those who missed it, let me give you a recap.

Customer acquisition is the key — all businesses should focus on it. The changing landscape due to the COVID-19 pandemic offers new opportunities and demands for innovative solutions in acquiring and retaining clients. It is fair to say that the recent disruption would definitely impact the customer acquisition process.

Based on the feedback on the customer acquisition article, we decided to elaborate on topics like which are the best customer acquisition strategies to be adopted, what are the right marketing methods, and most importantly how do we measure marketing and sales effectiveness in today’s edition.

Customer acquisition and customer retention strategies

The first step in any good acquisition strategy is understanding the requirements of the customers. Always remember the requirement and needs of your target customer are dynamic in nature. And this pandemic has introduced new complexities in understanding customer sentiments and their purchase decisions. But that should not stop you from understanding the shift of your customers’ needs and the impact of disruptions on their businesses and life. This will make the customer acquisition process easier and smoother, and reduce the turnaround time of converting a prospective buyer into a customer.

One of the best customer acquisition strategies is retaining the customer. A mere 5 per cent increase in retention ratio can increase company revenue by at least 25 per cent. Customer retention costs much less than acquiring new ones. Satisfied customers bring in new customers without having to incur any additional expenses. For high customer retention, it is important that we turn our customers into brand ambassadors of our products or services.

One of the methods to measure customer satisfaction is the Net Promoter Score (NPS). In this method each customer is asked a question on ‘how likely is he/she will recommend this product/company to a friend or colleague?’ The customer is asked to scale the product/company between 1 to 10. Customers who rate from 1 to 6 are detractors, 7-8 are passives and 9-10 are promoters (brand ambassadors). The percent of promoters minus the per cent of detractors gives us the NPS. The higher the NPS more satisfied the customers are.

It is vital that companies invest in customer services and always focus on customer experiences. This will turn customers into promoters of their products and services. After all, word of mouth always pays in the long term. A customer and consumer vouching for our products/services are the most effective marketing tool.

Right marketing method: Is it for real?

Today, we advise businesspersons to adopt digital marketing as it will play a pivotal role in acquiring new customers. This is mainly due to the increasing consumption of the internet. Besides, digital marketing methods bring in transparency and help to get a better ROMI (Return on Marketing Investment) on the money invested.

Traditional marketing methods should be more focused on local markets and building up customer relationships through personal connections.

However a very important caveat here to all businesspersons: It will not be advisable to completely avoid traditional marketing methods since low digital literacy and internet connectivity still leaves a large chunk of the population untapped and unexplored. This space continues to be better handled by traditional marketing methods.

Measuring customer acquisition cost (CAC)

This measurement is needed to get an idea of which marketing strategies are generating revenues for the company.

CAC = (MC + SA + S + O) / CA, where:

• CAC is the customer acquisition cost

• MC is marketing costs

• SA is the salary for marketing and sales

• S is marketing and sales software

• O is overhead for marketing and sales

• CA is customers acquired during the period

In conclusion, CAC is one of the key metrics on determining the marketing efforts of the company and it should be calculated and monitored at regular intervals.

(Inputs by CA Abhay Nair)

Dr Menon is a business coach and has a youtube channel menonmantras where many videos are uploaded for the benefit of the business community and employees.

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