Want to Increase Market Share? Research Suggests Retention Is Key

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Ask a marketer why customer retention is important, and we know the answer you’re most likely to receive: because it’s so much more cost-effective to entice an existing customer to buy again than it is to acquire a new customer.

We’ve got no argument with that, but there’s another powerful reason to get serious about customer retention. This is going to sound counterintuitive, but bear with us: Excellent retention is one of the most effective strategies marketers can use to enhance their acquisition efforts. Marketers that successfully retain their customers know what makes the best customers stay and spend, and what makes the most disenchanted opt-out.

In other words, they know what a profitable long-term customer looks like, not just from a demographic point of view, but from a behavioral point of view. They know which acquisition sources have paid off; they know which parts of the user experience demand investment and which are nearly optimized.

The proof, in the pudding: Retention-minded organizations increase market share more than any other group

Now we have data that shows exactly how this is working. Sailthru recently surveyed 300 retail and media executives to discover how they approach customer retention and how customer retention is being leveraged throughout their enterprises. The majority of the respondents – 72% – said their budget allocations were not particularly skewed toward either retention or acquisition. The remainder were equally split between acquisition and retention, with 14% of the total saying they budgeted more for retention (we’ll call them the retention gurus) and the other half favoring acquisition (the acquisition masters).

Then we asked each group how they’d done in their efforts to grow market share over the past year. Across the entire group of 300 respondents, only 4% said they’d increased market share significantly in the past year.

Given that the 14% focusing on acquisition were by definition going after market share, one would expect them to excel. They did do a little better than the average, with 5% percent of these acquisition athletes increasing market share over the past year.

But among the retention gurus, some 14% said they had managed to significantly increase their market share. In other words, you’re nearly three times as likely to succeed in growing your market share if you focus on retention rather than acquisition.

A smarter way to acquire

We can learn at least two things from this. One is the importance of plugging the so-called leaky bucket. You can be acquiring customers like crazy, but if they’re churning out just as quickly, all that acquisition doesn’t do you much good. Worse, it gets expensive, fast.

Second, the success of retention gurus in growing their market share shows that it’s a lot easier to efficiently find new customers if you already have a good handle on what distinguishes your best existing customers. That drives down the cost of acquisition. You’re not wasting time, energy, and money chasing down people who will never click, and since you’re more likely to be acquiring customers who are genuinely valuable, you’re also supporting long-term sustainable growth. That should be something any marketer can get behind.