Volume 10 No. 3: Acquisition vs loyalty
You just set up a lemonade stand in your neighborhood. Across the street is your fierce competitor... the limeade stand.
To grow your business, should you try to acquire new customers (including competitor customers and those who haven’t purchased either lemonade or limeade) or should you focus on encouraging the customers you already have to buy even more?
Market penetration, not customer loyalty, drives growth.
Each week, we break down another marketing trend so you can skip having a breakdown.
Is growth driven by market penetration or customer loyalty? This question has inspired recurring analysis over the last decade.
Those who argue for loyalty emphasize how it’s typically less effort to encourage an existing customer to increase their commitment than to gain an entirely new customer. If someone’s already buying lemonade, it’s relatively simple to convince them to buy two or three lemonades. (It’s such a hot day. Save one for later!).
The alternative is convincing someone from across the street that lemonade is superior to limeade. That’s not easy. But research continually finds market penetration is the only way to drive substantial growth. And when brands decline, it’s because penetration is dropping.
Part of this is because there’s a limited group that wants to buy three lemonades daily. Even fewer will buy five. There’s a lot more people willing to buy one lemonade who haven’t bought any before. Plus, no one keeps 100% of their customers, regardless of loyalty efforts. So new customers are required even to maintain market position.
There is good news. When market penetration increases, brand loyalty tends to follow suit.
Key Takeaway: Spend time understanding and connecting with broad audiences that include non-customers. A mass-reach channel like TV is one way to do this.
The Growth Lab
Question: How do you stay informed when your industry constantly changes?
We ask an experienced group of business leaders, marketers and statisticians about strategies for success.
Answer: "Use your LinkedIn network. Connect and ask questions. If they’re local, get together for lunch! Secondly, sign up for newsletters on industry topics. Since I work in technology, I subscribe to TLDR, TechCrunch, and Wired. Lastly, talk about your industry whenever you can. I open meetings with questions like, ‘Anyone played around with ChatGPT?’or ‘Anyone download a new app lately?’"
— Aaron Lange, SVP Technology
Aaron has a reputation for breaking and retooling technology to meet companies’ ever-changing needs. But when he’s not bending software to his will, you’ll find him with his family or on the volleyball court.
WARC collects and shares top marketing research and case studies—all to provide marketers the tools needed to produce impactful campaigns. WARC’s highly data-driven articles discuss everything from creative effectiveness to the value of brand-building to recent shifts in consumer behavior.
Our favorite insight? Don’t skip long-term strategies. 60% of marketing ROI is generated over the long term, and all media types can drive long-term ROI when used correctly.
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