In 60 Seconds
- •The Myth: 'It costs 5x more to get a new customer than keep an old one, so focus on retention.'
- •The Reality: You cannot grow a business solely on retention. You effectively have a 'growth ceiling' capped by your current user base.
- •Double Jeopardy: Small brands have fewer buyers AND lower loyalty. Big brands have more buyers AND higher loyalty. Growth drives loyalty, not the other way around.
- •Polygamous Loyalty: Your customers aren't 100% loyal. They buy from you *and* your competitor. They are 'polygamous'.
- •The Fix: Focus on 'Mental Availability' (being known) and 'Physical Availability' (being easy to buy). Acquire the masses.
We have all heard the adage: "It costs 5x (or 10x, or 25x) more to acquire a new customer than to retain an existing one."
Consultants love this line. It sells loyalty programs, email newsletters, and CRM consulting.
But if you look at the data—real purchase data from thousands of categories—a different story emerges. Brands that focus solely on loyalty stagnate. Brands that focus on acquisition grow.
The Leak in the Bucket
Imagine a bucket with a hole.
- Retention strategy focuses on plugging the hole.
- Acquisition strategy focuses on pouring more water in.
You need to plug the hole (Operational Excellence). If your service is bad, you will die. BUT, once the hole is "reasonably" plugged, you cannot grow by just staring at the water already in the bucket. You need the hose.
Consumers Are Polygamous
We like to think our customers "love" us. The truth is, they barely think about us. In almost every category, buyers are polygamous.
- They order pizza from Dominos and Papa Johns.
- They hire you for plumbing and the other guy when you are busy.
You cannot "loyalty" your way into 100% share of wallet. It fights against human nature.
The path to Growth: Penetration
Professor Byron Sharp (How Brands Grow) proved that the primary difference between a small brand and a big brand is Penetration (Market Share).
Coca-Cola doesn't have "super fans" who drink 500 cokes a day. Coca-Cola has millions of "light buyers" who drink 1 coke a month.
To grow your local business:
- Don't obsess over turning your 100 customers into "Brand Evangelists."
- Obsess over turning the 10,000 people who don't know you into "Light Buyers" who call you once.
Summary
- Retention prevents decline.
- Acquisition drives growth.
Do not trade your ad budget for a loyalty program. You need new blood.
Read Next in This Hub:
- Light Buyers - Your true growth engine.
- Double Jeopardy - The math behind it.
Related System:
- Local Visibility Systems - Get new buyers.