Acquire or Retain Customers? A Few Thoughts on a Smart Choice

Over the last decade, mainly due to the benefits of business intelligence, some retailers have become more knowledgeable about customer retention. Although some organizations are still putting way too much effort on customer acquisition, most are concentrating on customer retention and the benefits that come with it. As we all know, many key elements can contribute to retaining customers, including service, product assortment, price and promotions, just to name a few.

Recently, the Canadian Retail Insights Report noted that about half of Canadian retailers plan on dropping prices this year in order to retain customers. That is a 43 percent increase over last year. On top of slashing prices, more than 80 percent of retailers claim they will be promoting loyalty by offering promotions and discounts. In the long run, this will only be good for some customers and I would bet that many retailers will eat their money without necessarily seeing positive results.

Retailers that have been running a loyalty program for several years will definitely have a competitive advantage over the ones that have not. It could be relatively easy for analysts to evaluate the level of price sensitivity amongst shoppers, however this can’t be done without customer data populated from a loyalty program.

From a strategic standpoint, there will always be products that price sensitive customers are simply NOT interested in. With customer data, those upmarket products can be first identified and then scratched from the list for price cuts. In the end, the retailers that have the “right” intelligence to determine which products are important to price sensitive customers will come out on top.

For retailers who don’t offer a loyalty program, and therefore don’t have access to customer data, it may be better to focus on other areas (customer service, product assortment and merchandising) before implementing a new pricing strategy that could potential hurt the bottom line. Everyone needs to be reminded that only a certain percentage of the population is price sensitive. Although a price cut is very much appreciated from non-price sensitive customers, the real impact on loyalty comes from customers who evaluate price when choosing a store.

Here’s another interesting point from the Canadian Retail Insights Report. The Grocery & Pharmacy sectors include customer retention as part of their key business strategy, while Gas, General Retail & Fast Food focus more on customer acquisition. When I think about loyalty programs and analytics, Grocery & Pharmacy have always led the pack compared to the other industries mentioned above. They have managed to understand, through data analytics, the real value of customer retention.

For those who have not figured that one out yet, think about this: it costs 8 times more to acquire a new customer than to retain an existing one.