Why Recruiting New Customers Is More Expensive Than Retaining The Existing Ones

All the marketing authors, gurus and researches have proved that retaining the existing customers is cheaper than finding new ones. To support this, there is an English word “one bird in hand is worth two birds in the bush”. This shows the existing one is always better than the one to come in the future.

The company needs to use multichannel in recruiting new customers. But none of them are free. Cost generating in finding new customers are as follows;

Table 1.1; Cost associated with finding new customers

As shown in the table above, the company can:

1. Reduce the frequency of advertising and the volume promotional activities such as free gifts, discounts, sponsorships and so on,(“these are huge cost generating activities),


2. Reduce the personal selling budget (by doing so, the company can reduce the commission for sales persons),


3. Reduce budget in setting up new account (by doing so the company can reduce the entertainment budget for the customers),


4. Reduce time and money in explaining business procedures and the cost associated with inefficient dealings with new customers because customers who come to the company with the recommendation of their friends or relatives will know much more than the crude new ones, and


5. Finally increase the revenue by charging premium because the loyal and satisfied customers are less price sensitive, increase the revenue again with the repeat purchase of the existing customers without any persuasion cost and income from new account with less investment.
   
   

   Table 1.2; Profit generating from satisfied customers

   
   

   

   
   
   

Now the author expects that the readers can see the difference of recruiting new customers and retaining the existing ones and why it is less expensive to retain the existing customers than hunting new ones.

The ways to retain the existing customers or raise loyalty is to improve the product/service quality and know what they want and meet it and increase switching costs by being different from others. Of course, the company must also keep going to find new customers who have interest in the product, whose needs are in the product and more importantly who have the purchasing power with the application of the least possible cost and most creative and innovative way in order to expand the market by hitting the right target at the right time with the right force (with the right mix of 4 Ps and promotional activities).

Source: Kotler (2005), Marketing management; Spiro, Rich, Stanton (2008), Management of a sales force and other contemporary international marketing journals.

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