Why Do New Customers Get the Best Deals?

Posted on January 27, 2009

Has anyone else noticed that it is the most recent acquired customer who gets the best deal? Specifically, if you look at the acquisition offers extended to new customers in many service/subscription industries (wireless, cable, airlines, banking, health clubs, etc.) it seems that the new customer (least invested in the brand) often gets access to the best offers while the loyal customers (most invested in the brand) often receives little for their patronage.

San Antonio social media and PR expert Alan Weinkrantz demonstrates what happens when one of those loyal customers attempts to level the playing field with AT&T and how it landed him on Good Morning America.

So, how is it that companies will agree that it costs 10X more to acquire a new customer than retain an existing customer — but then they go out and give the new customer better deals that the existing customers? A Sprint customer tells their story.

It was consulting firm McKinsey & Company who suggested that it costs approximately ten times more to acquire a new customer than retain an existing customer.  On the heels of this generally accepted rule,  they also offer an interesting report on a less obvious metric — the impact to customer lifetime value from shifts buyer behavior.  Specifically, while most marketers are measuring net customer gain, they often fail to measure increases or decreases in expenditures by existing customers that can actually have a more dramatic impact on corporate profits and lifetime value (we’ll discuss this overlooked phenomenon in an upcoming blog discussion regarding quantifying lifetime value of a customer.)

The bottom line is that too many marketers would rather pay 10X to acquire new customers because that’s how their culture is structured — they simply can’t help themselves because that’s how they were trained.  They often “poo poo” retention as a feel good exercise and fail to understand the dollars and cents of protecting existing revenue streams and converting frequent customers to a virtual sales force via referral programs.  They claim to run their business “by the numbers” but experience marketing amnesia with regards to this statistic or the concept of customer retention.

In the haste to add new customers, let’s not forget those who have invested most heavily in our brand(s) and the fact that the money spent to acquire a new customer with an unproven lifetime value might be better spent turning existing customers into brand advocates who refer/sell our brands to their friends for a fraction of the cost.

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