Why Customer Acquisition Is Trumps

Companies traditionally put a huge amount of resources into carving out and dominating niches within a particular product category. Airline loyalty programmes are one example of the lengths marketers will go to in order to retain customers. But in more dynamic markets such as web-based services, the old rules no longer apply. Customer acquisition trumps retention every time. Do the math.

For argument’s sake, let’s say that there are a total of 100 customers in your target category and that 20% change their loyalty each year. So, ignoring any organic growth, there is a total pool of 20 customers up for grabs in any given year. A start-up entering the field does well and secures 5 of these floating customers in the first year. But they will lose one of these customers at the end of the first year on average. In the second year there are still 20 customers looking to change provider. If the start-up succeeds with customer acquisition at the same rate it will still more than double it’s user base.

Being a small brand in a market with high defection rates is risky. Growing customer numbers as quickly as possible is insurance against future defections. A larger brand can weather the storm. For many product categories in fact, 20% loyalty churn would be extraordinarily high. So a new entrant has its work cut out for it on both fronts because in some industries the number of shifters is fewer.

I’ve over-simplified the figures, but you see my point. Acquiring customers from the pool of dissatisfied users is the primary goal of a start-up. In the case of web-based services, create a better user experience and you immediately tap into that pool. Customer retention will also take care of itself. Because the domain registrar industry is in dire need of innovation and there is a large number of disaffected users, this is the approach we have taken at iWantMyName.

1 thought on “Why Customer Acquisition Is Trumps

  1. Postscript:

    I was at a lively discussion session today about brands. It was interesting to note the reaction in the room when I challenged the myth that product differentiation delivers customer growth. Obviously I struck a nerve, so I pressed on by pointing out that companies, with highly differentiated product lines such as cola and toothpaste, very rarely gain or lose significant market share.

    I was shouted down by “experts” who claimed I was confusing marketing with sales. But isn’t the whole point of marketing to generate sales? Marketers today need to make brands more memorable, not more differentiated!

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