Why Prioritizing Acquisition over Retention May Not Be the Best Move to Make When It Comes to Building a Customer Base
‘X’ is an e-commerce company that deals with fast fashion and focuses only on acquiring new customers through heavy discounting and advertising. While they may see a spike in new customer acquisition, they may also see a high rate of customers who only make one purchase and never return. The same company decides to change its approach and begin focusing on retaining its customers through a great post-purchase experience and loyalty program.
In the first case, there is a constant need for more marketing spending to acquire new customers and a lower lifetime value from each customer. Whereas, in the second, they may see a decrease in customer churn rate and an increase in repeat purchases. Over time, this also results in a more stable and profitable customer base, with a higher lifetime value from each customer.
Thus, it is clear that while acquiring new customers is important, retaining existing ones is often more profitable and cost-effective in the long run. Thus, e-commerce brands must start prioritizing customer retention over acquisition, as it is the best move to make.
Still not convinced? Here are some metrics that speak for themselves.
Importance of a customer base
Here are some key metrics on the importance of customer loyalty in e-commerce:
- Repeat customers are more valuable: According to Hubspot, repeat customers spend 67% more on average compared to new customers.
- Increased customer lifetime value: Shopify found that customers who make repeat purchases have a higher lifetime value compared to one-time customers.
- Lower acquisition costs: Acquiring a new customer is often more expensive than retaining an existing one. It costs 7 times more to acquire a new customer compared to retaining an existing one.
- Increased NPS (Net Promoter Score): Satisfied and loyal customers are more likely to refer others to the e-commerce business, resulting in more new customers.
Now that it is clear why retention needs to be prioritized over simply spending on acquiring new customers, let’s move on to the focus of this article ‘building a customer base with post-purchase strategies’. But before that, here comes a harsh truth — customer loyalty efforts in the post-purchase aren’t as easy as it is in the pre-purchase phase.
Why, you ask? Here’s why.
Why Do Efforts to Build a Customer Base Take a Hit in the Post-purchase Phase?
Building a customer base can take a hit in the post-purchase phase for several reasons, with the priority being the lack of control over the post-purchase phase itself.
E-commerce businesses, who do a lot to make their customers hit buy, intentionally cut off almost all communication with their customers once the order is dispatched and handed over to the shipping carrier. This lack of communication results in a feeling of neglect. Also, a lack of follow-up in the post-purchase prevents businesses from knowing what the customer really feels about their purchase and makes any room for improvements near-impossible.
Adding fuel to the fire is the occurrence of post-purchase issues such as shipping delays, damaged products, poor customer service, etc. Even in cases where nothing goes wrong, unmet expectations and customers feeling unvalued can lead to decreased customer satisfaction.
All of this can ultimately lead to negative post-purchase experiences and cause the customer to end ties with the business. On the other hand, a great post-purchase experience can help build a better brand reputation and increase customer trust.
Thus, it’s important for e-commerce businesses to focus on post-purchase experiences, to protect all their loyalty efforts in the pre-purchase from going to waste.