Firms Now Spend More on Old, Not New, Customers

Conquer new terrain or retain old territory? It’s a perennial business question, but for the first time ever, corporate America is spending more on keeping customers than on capturing them.

Last summer Marketing Metrics, a Paramus, N.J., consulting firm, conducted a survey of the marketing strategies of 165 U.S. companies. It showed that a collective 53% of their marketing budgets was allocated to retaining customers, 47% to winning new ones. Just three years ago, the percentages were 54% on conquest and 46% on retention.

Half the respondents said a majority of marketing resources should be devoted to keeping customers; 30% said the bulk should go to winning new ones; 20% said the spending should be equal.

“Ultimately this will mean a shift of funds out of advertising into customer service programs,” predicts Terry G. Vavra, president of Marketing Metrics and author of “Aftermarketing: How to Keep Customers for Life.” “The goal has shifted from gaining share of market to increasing share of the customer, intensifying his loyalty,” Vavra said.

Many marketers share the view of Thomas J. Vos, vice president of marketing at Bowne & Co. financial printers. “If you have high market share, concentrate on retention,” he says. If you have a low share, focus on attracting new customers.

Vavra, however, said retention marketing is equally effective and possibly more important for companies that are third or fourth in their fields.

On average, 65% of a company’s business comes from current customers. It costs five to 10 times more to acquire a customer than to serve an existing one, and current customers are more likely to buy other company products.

Further, some 91% of dissatisfied customers vow they’ll never again buy from the company that disappointed them, experts say. Most will not complain to the company but will tell nine acquaintances.