New business beats customer loyalty every time

New business beats customer loyalty every time

Firms which focus on retention at the expense of bringing in new customers will struggle to grow sustainably. But a shift in strategy can help your business reap long-term rewards. In terms of a low-cost business strategy, maximising customer loyalty seems like a no brainer.

Your customers are keen enough on your product or service to have bought it at least once, and ‘ if they’ve signed up to a subscription ‘ to have stuck around. Plus, you’ve probably heard that acquiring a new customer is massively more expensive than retaining an existing one.

Cultivating a lasting relationship with these customers and securing repeat purchases seems like a sensible way to secure business growth. Especially for businesses obsessing over monthly recurring revenue (MRR) and customer acquisition cost (CAC). They want to see the former increase and the latter go down over time.

So that’s exactly what many businesses do: they agonise over loyalty metrics and plough time and resources into retention.

But in the real world, focusing too narrowly on retention as a way to grow sustainably is bound to fail. It’s because of a marketing concept which disrupts the conventional way of thinking when it comes to loyalty and growth.

Called Double Jeopardy, this phenomenon was first understood in the 1960s (and is detailed in How Brands Grow by Byron Sharp). It states that brands with less market share have fewer customers who are also less loyal. Conversely, brands with higher market share have more customers who are in turn more loyal. 

It may seem counterintuitive, but customer numbers and loyalty levels grow and fall together in tandem. That’s why investing in boosting loyalty without growing your market share won’t get you very far: improved loyalty from customers comes from having more customers.

The obvious implication of this is that expanding the size of your customer base is a much more valuable goal than retention.

This is backed up in a recent report by the Ehrenberg-Bass Institute and LinkedIn, which demonstrates that the Double Jeopardy rule holds across a range of B2B brand categories in spite of the fact there might be a more limited number of potential customers.

It concludes that, while loyalty from existing customers is important and necessary, it’s not sufficient to grow, and that brands should ensure they are making efforts to reach a wider base of buyers.

Your job as a marketer, then, is to make it as easy as possible for non-customers to think about your business ‘ and that means investing in brand building.

It makes sense that brands that have greater mental availability ultimately benefit from greater loyalty. When in a buying situation, people will default to those they’ve heard of, as it seems like the safest option.

This is particularly true for B2B purchases, where the stakes are higher: the buyer is likely to be spending a very large quantity of someone else’s money and, on a personal level, their job and livelihood is on the line.

So how do you go about it? It’s important to remember that brand building is a long-term game: one that needs to be measured over years, not weeks or months. You’ll need to have a strong, consistent message, one that speaks directly to your customer and the pain points they experience. Crucially, you need to stand out among your competitors, and that means being distinctive and memorable.

Consider the fact that 83% of B2B buyers recently surveyed by WSJ Intelligence said that, even in their early search stage, they evaluated no more than four providers. Building awareness of your brand among as many potential buyers as possible is key to ensuring your company makes it onto the shortlist. 

Of course, focusing on brand building and increasing your market share doesn’t mean you should stop caring about loyalty and ignore your existing customers. On the contrary, their insight is key to gaining new ones. 

It is by talking to existing customers ‘ new ones, old ones, ones that have left, ones that have come back ‘ that you can find out exactly why and how your product works for them. This ‘how’ question is particularly useful: ask your customers what tasks and jobs they use your product to make progress on to really understand their motivation for investing in you.

Ultimately, shifting your focus to brand building as a way to increase your market share will be a more successful way to boost loyalty and retain the customers you already have. 

Jason Ball
Jason Ball

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