Customer Acquisition vs Customer Retention

Instructor: Allison Tanner
Customer acquisition and customer retention are important to all companies. This lesson will describe the important differences between acquisition and retention.

Acquisition and Retention of Customers

Ben has just moved to a new town and is in search of a car repair shop to help him maintain his oil and perform routine maintenance checks. After seeing several ads posted around town and hearing some commercials on the radio, Ben has decided to check out a local shop called Auto World.

This means Auto World has now acquired Ben as a new customer. This is known as customer acquisition, or the process of gaining new customers.

If a few months go by and Ben continues to use Auto World services, then the company has successfully retained him as a customer. This means that customer retention is the process of maintaining or keeping customers once you have acquired them.

Why do Acquisition and Retention Matter?

Now, all companies, including Auto World, need to be able to acquire customers and retain them. However, there are some important differences between acquisition and retention.

Customer Acquisition

The primary goal of customer acquisition is to gain new customers. This means that the process is focused on marketing, which is basically communicating with or attracting new customers through targeted messages.

Common components of an acquisition strategy typically include:

  • Identifying potential customers
  • Designing and implementing marketing strategies
  • Following up on potential sales
  • Measuring the success of strategies

Most companies use marketing via ads or commercials in order to trigger the interest of potential customers. Companies may also use direct marketing, which is when an employee of the company speaks directly to potential clients in hopes of gaining their business.

Regardless of the marketing strategy that Auto World or any other company chooses to use, it is still costly and time consuming. More importantly, the company can't be sure that they will even gain a new customer through these processes.

Customer Retention

While the focus of acquisition is on new customers, the focus of customer retention is on nurturing the relationship with current customers so that they will continue to use the products and services the company is offering. Here, Auto World will want to take steps to ensure that Ben comes back for every oil change and tire repair.

This means that customer retention strategies are focused on:

  • Customer service
  • Quality of products and services
  • Creating a customer-friendly environment
  • Loyalty programs

…and other processes that encourage customers to continue using Auto World, or any other company's products and services.

Comparing the Costs of Acquisition and Retention

Ben noticed that the customer service at Auto World was fantastic. For once, the ads on the radio matched the services the auto company provided. Ben was so happy that he decided to continue using Auto World and share his experience with anyone needing an oil change for their car.

Auto World has likely placed a lot of focus on customer retention. This means that they invest in their customers and work hard to ensure that they are satisfied with their services.

Companies will often place a lot of emphasis on customer retention because customer acquisition is significantly more expensive. The cost of advertising a business can be extremely high, and the process does not guarantee that Auto World will gain new customers.

However, customer retention strategies are typically less costly, and they increase the likelihood that a customer will continue to use the products and services they are being offered.

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