How To Develop A Profitable Customer Acquisition Strategy
Good customers grow businesses. Customers are the most valuable business asset. In this age of plentiful choice in retail, however, customers have become exceedingly difficult to buy and exceedingly easy to lose. Brian Almeida, partner, Strategic Caravan, a consulting practice focused on the customer, shares pointers to acquire customers that stick, and grow your business.
Focus on quality, not quantity
Customer acquisition presents the biggest cost to retail businesses. Sadly, however, customer value does not figure on balance sheets.
Of late online retail has seen intense competition for customers.
Online market leaders like Flipkart, Myntra and Snapdeal have adopted deep discounting to acquire customers (and retain existing ones). This strategy can be dangerous if your growth from acquisition greatly exceeds your growth from existing customers. It would mean you cannot hold on to any of your newly acquired customers.
“Discount-driven one-off” customers make poor customers. They are just a liability.
Acquiring low quality customers is a loss-making proposition in the long run because they are expensive to retain. While discounts may bring many like them, they will leave just as soon as the discounts dry up. Thus, their lifetime value, a key measure of profitability, is low. On top of that they add to the pressure of customer service and maintenance.
Low quality customers will make it that much more challenging to make your business model work.
Instead look to acquire quality customers that will become your best assets by yielding high lifetime value.
Identify your best customers, acquire more like them
Focusing on acquiring good customers does not necessarily mean that you will acquire few customers. Your customer acquisition funnel may be very wide-mouthed, and gradually narrow down to the choicest few.
The secret is to identify which customers will grow your business, by growing their own purchase basket. This involves tracking your customers’ past journey with you, and projecting their future journey by estimating their lifetime value.
By modelling your customers’ lifetime value you will come to know how many quality customers you have in your kitty. It is only worthwhile to invest advertising spend in good customers.
Modelling customers’ lifetime value will also tell you if your product and service line-up is good enough. To maximise customer lifetime value, you may need to widen your product/service portfolio.
Acquire customers online
In this digital age, acquiring customers online is the mantra, but while it appears cheaper don’t assume it is easier. It becomes cost-effective only through continuous measurement, monitoring and learning.
Digitalisation has given businesses easier access to potentials, alright. Just remember that many like you are wooing those potentials, as competitors will frequently poach your customers.
Adopt very targeted/relevant marketing to reach out to potentially good customers.
Set a budget, and then measure your returns.
Make your offering relevant to encourage customers to stick, make it costly for customers to switch.
Don’t rely on discounts to increase customer stickiness
Business health is an outcome of acquiring more profitable customers. Healthy businesses aren’t sustainable or profitable. They achieve sustainable profitability.
So, instead of discounts, use other differentiators to stand out and increase customer stickiness.
Amazon is a great model for many in the online space as it focuses on customer relevance, convenience and service, and even in India, you would have seen how Amazon has gradually improved its offerings to existing customers.
Other useful differentiators are exclusivity of the offering, delivery timing, returns policy, etc.