Are you keeping up with the modern consumer?
A fundamental of business development revolves around the notion that it costs a lot more to attract a new customer than it does to keep an existing one. In fact, many business experts claim that it costs five times as much.
Having gone unchallenged for near two decades, Ipsos Loyalty suggests this taken-for-granted statement is actually far more complex than one may first expect, arguing the lines between customer acquisition and retention are breaking down. But what does this mean when it comes to allocating your marketing budget?
Consumers are interacting with brands and businesses in more convoluted and creative ways than ever before.
The crossover between customer acquisition and retention
In late 2015, Accenture Interactive revealed its latest research into the cost of lost customers. In 2010, this was valued at $4.9 trillion for all US businesses, but five years on this has risen 27 per cent to a record-high of $6.2 trillion.
Behind the trend, according to Accenture, are two primary drivers: rising expectations from consumers and an unprecedented ability for customers to share experiences through various online channels such as social media. Those businesses planning on getting it right have revised their marketing mantra to envisage a customer journey rather than a simplistic customer life-cycle.
By looking at customer relationships as a systematic series of meetings, businesses are ignoring the way consumers actually behave. By doing this, they are inadvertently succumbing to the switching economy, where consumers are increasingly inclined to shop around rather than stay loyal. Businesses need to realise that consumers are interacting with brands and businesses in more convoluted and creative ways than ever before. This makes it a challenge to know exactly how much your customers are worth to your business, and, in effect, how much you should invest in their customer journey.
Understanding the life-time value of customers
With this new-aged marketing mindset, one thing remains the same: the bedrock that is the lifetime customer value (LCV).
Business coach and contributor to Entrepreneur.com Brad Sugar even argues that knowing your LCV is more important than knowing when you will break even.
The life-time value is worked out by taking the average value of a sale, multiplying it by the number of repeat transactions, then multiplying this again by the average period you retain customers for. While the formula is simple, getting the three numbers to calculate it is not such an easy feat. However, it is the best guide to how much you should be spending on managing your customer experience – not retention or acquisition, but the entire journey.
If you want to find out more about the impact customer switching has on your business, for assistance preparing budgets or analysing business performance, get in touch with Wilson Porter today.