Customer Aquisation Versus Retention - Essay Example

Customer Aquisation Versus Retention Abstract Seasons have changed from the traditional time when the business world was not that crowded and one retailer had the capacity to serve a vast region with little effort to lure customers as the need for commodities simply drove them to the retailer. Little efforts were equally made in following up on customer loyalty as the simplicity of the trade and marketing of the day easily sustained customer loyalty. However, in the current world of trade exhibits a whole range of evolution with the necessity of sales and promotion practices aimed to attracting customers to one’s business. Today’s business premises stand side-by-side, selling similar commodities and equally expecting to win customers for sales. This has equally necessitated the need for strategic customer service that will win customer loyalty in order to retain them. This has by far been influenced by the emerging trends in business today where the online trade has slowly taken over the business sphere. Customer acquisition or dismissal is held in the power of just a click of the mouse. The efforts and practices that traders are adopting to win customers and retain them encompass certain costs. This paper intends to evaluate, compare as well as contrast the costs that business incur in order to win customers to their side and well enough retain them for future sales. There are also varying interactions and relations that hold between business and business and between business and customers both before sales and after sales. This paper will also evaluate these relations as pertains to winning customers as well as retaining the customers. There exist various schools of thought as pertains to the topic of customer acquisition and customer retention. The proponents of customer accusation hold their views as to the strengths of accruing new customers as against retaining them while at the same time, the critics of the practice holds that it is more profitable to retain customers than acquiring new ones. The supporters of the retention are agued to hold the position that acquiring a customer is very expensive as compared to retaining one. Some statistics are quoted to allude to the costs of acquiring one customer through promotional services and sales as to being ranging from six to ten times higher than the costs that the business would incur in retaining a customer. Other statistics reason that a business’ 80% sales are just gotten from about 20%, which spells out the critical need for the business to maintain health relations with these loyal customers. It is easier for the retained relations to communicate over a business’ brands than new customers. They therefore play a critical role of tracking the progress of the business in terms of quality standards of commodities as well as the services. Moreover, findings from a report by Reichheld indicate that retained customers eventually buy a lot from this business and as a result, the business records higher profits. The operating costs in serving retained consumers tend to be lower than the costs for serving new consumers. Retained customers are also better placed to refer and bring other customers on board than is the case in new customers. Businesses therefore analyze the profitability of retaining all the customers but the cost effectiveness analysis dictates that a business should strive to maintain the only segment of customers that prove more profitable than the rest (2001, p. 1). Nevertheless, globalization trends are seen to adversely affect the efforts of retaining customers as the internet has opened a whole view world of advertising and promotion. Via just a click of a mouse, it is possible to lose a retained customer. Therefore, the efforts of retaining a customer get more expensive and complicated. On the other hand, the supporters of the customer accusation reason that there is no more growth that can result from an already retained pool of customers than has already been met. This therefore supports the need for new customers to be brought on board. New customers are argued to bring on board new experiences, which will challenge and stir the business to the right direction as against customers who have only the experience of that same business. They therefore support acquiring new customers though whichever means as against just putting too much effort in retaining the existing customers. . However, research findings note that operating costs of firms rise in regard to acquiring new customers. This is because, introducing of new customers entails through orientation in regard to the business products and well too to the practices of the business (Keiningham, et al, 2005, p. 1-2). Moreover, the supporters of the opinion are equally aware that the efforts of conducting promotions and advertisements for the purpose of winning new customers are very high. Critics cite the possibility of losing a lot through enormous promotional costs, which the customers gained, is not in a position to cover. They cite the risk as being quite high and hence the need for the companies that affiliate to the system to be more strategic in incurring these costs as the company may just be incurring costs that are not recovered. The decision of a business to buy and or retain customers is critical to the overall performance of the business at the current stage as well as for the future. Studies have revealed that businesses thrive better in competition where one business strives to outdo its rival in terms of profit margins and the competition. In this regard, businesses are seen to relate at the level of competition, innovation and sharing ideas. Business-business relations are seen to be at all levels of stages, both at the presale stage and at the post sale stage. On the other hand, business-customer relations thrive at the presale stage through promotions and customer awareness and the actual sales service. At the post sale stage, customers and business relates at a rather hire level of understanding. In the event that the customer never received satisfactory services or the goods never matched his/her standards, the customer is bound to be lost unless with proper follow-up. Nevertheless, proper and satisfactory services commentates a good relation between the customer and the business even safer the transaction. Repeated transactions build up strong relations between the two entities. Business-to-customer relations also entail the relationship between the employees as well as the customers. Largely, the business employees determine the satisfaction of customers thus dictating the likelihood of retention to customers as well as winning new customers for the business. This is because the employees are in direct contact to the customers unlike the management. Proper relations in present stage influence the post-sale relations; businesses to customer relations are harnessed both at the pre-sale stage and at the post sale stage through communication. When customers are handled poorly at these stages, retention is not expected. The reverse is true where customer loyalty is highly realized through proper business customer relations. Business-to-business relations are seen to be either collaborative or competition. Business can collaborate through adoption of similar systems of service through which the flow of information from one business to another can flow for the common good of the two firms. This can be illustrated through adoption of similar customer relationship management system. These enable corroborative efforts of businesses to thrive through sharing ( Agrawal and Mittal, 2002, p. 1 of 12). On the other hand, destructive competition may represent the unfavorable relationship between businesses where one business adopts harmful strategies for competition through which customers will be dissatisfied and the effects be felt across a whole range of industry and businesses. In conclusion, the study reveals that there are various levels of interaction within businesses and customers. Businesses thrive in market through adoption of policies that influence customer retention and or customer accusation. The cost effectiveness of either method for any business dictates the best policies to be taken. There is the class of people who advocate for customer acquisition, as retention may prove expensive and volatile especially in the advent of competitive promotion methods through the internet. Consequently, the other school of thought hold the advantage of retention as there is no certainty in searching for new customers through high costs which the customers sought are not in a position to service. Through these considerations, we acknowledge the varying viewpoints of the subject of customer creation as well as retention. References Agrawal V. and Mittal M. (2002). CUSTOMER RELATIONSHIP MANAGEMENT. THE e11 WAY. White Paper. Delhi Business Review ?Vol. 3, No. 1, January - June 2002. 1 of 12 Keiningham, Vavra, Aksoy, and Wallard. (2005). It Costs Five Times More to Acquire a Customer than to Retain a Customer. Loyalty Myth #8: 2005 Ipsos. 1-2 [Accessed on 5/5/2013] Web: Reichheld F. (2001). Prescription for cutting costs: Loyal relationships. BAIN & COMPANY. September 2001. 1 [Accessed on 5/5/2013] Web: Read More