Monday, May 11, 2009

The case for customer acquisition

Every now and then it’s good to throw a brick at accepted wisdom. I think it’s time to throw a brick at the sanctity of customer retention. Everyone that ever reported to a sales or marketing job has heard the mantra: Customer acquisition is ten times more expensive than customer retention. I’ll save the background, because it’s well-travelled ground.

I see an opportunity for customer acquisition, and if you look through this prism you’ll see some companies that apparently agree. Conventional wisdom be damned, here’s my case for making customer retention priority number two:

The economic opportunity: Seems to me that companies are quickly falling into two categories: customer advocates and survivors. Look at GM and Nissan. Look at Citigroup and Wells Fargo and Microsoft and Apple. In an era when chapter 11 and government bailouts becomes an alternative, getting after the competition’s customers is a good short term play. Apple is the best example. It has positioned itself for new to the market customers through innovative retail and aggressive ads. Ford has also done well, playing up its image as the only “non-bailout” domestic alternative.

Online ROI: When McKinsey and the rest of the academic crew came up with their customer retention algorithms, media costs were much higher. If a company wanted to acquire a customer it relied on trade events, non-interactive media, telemarketing, and direct mail. The internet levels the playing field. Companies such as Century 21, Avon and Orbitz have moved all or a large percentage of their budgets to online display and search for lead generation and customer acquisition because they can get in front of the right customer and be there at the crucial moment of truth.

Changing competitive strategy: Successful companies in this downturn have sharpened their spikes. Google is all about innovation and customer experience, but ask someone at Yahoo if it’s a tough competitor. WalMart is, well WalMart. Starbucks has taken the high road in reaction to the challenge from Dunkin’ Donuts and McCafe challenge and McDonald’s has responded with gift cards. I’d like to see Starbucks win, but McD’s understands customer acquisition is a necessary and sometimes nasty game.

I’m not suggesting that companies ignore retention. I am suggesting they pump up their efforts to add new customers before the economy becomes flush again. Go get ‘em; then retain ‘em.

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