Focusing on acquisition over retention is "fool's gold" - report

Even though loyal customers are more profitable than new ones, the majority of UK high street retailers are spending more on acquisition than retention and thereby failing to address relatively poor customer service levels.

According to a survey of 280 senior decision-makers and C-level managers from UK household brands undertaken by Retail Week on behalf of sports and entertainment venue operator SMG, some 63% achieve higher profit margins from existing consumers than new ones (19%).

But next year, 55% say that they intend to invest more on customer acquisition regardless compared with only 36% five years ago. The figure is expected to rise to a huge 63% by 2015, however.

Jeremy Michael, SMG’s managing director, said: "During a prolonged downturn in the UK and global economy, a crisis in consumer confidence, planned government spending curbs and a looming rise in VAT, retailers should urgently rethink the balance between investing in customer acquisition and loyalty."

While attracting new customers may be the primary objective of many, for the majority, it would simply be "fool’s gold", he added.

The problem was the widespread perception that boosting customer satisfaction and therefore loyalty was more challenging (42%) than acquiring new customers (32%). It was also easier to obtain budget for high-profile advertising campaigns due to their positive impact at board level than to undertake a customer service initiative or staff training.

But in practice, bettering the in-store experience in order to improve customer loyalty for example by boosting in-store product or service availability and staff knowledge, was more within the control of retailers than undertaking less predictable external activity such as advertising or providing special offers.

"It comes down to controllable customer service factors in-store that will determine the retailer’s success," said Michael. Nonetheless, there was an "ingrained apathy towards customer service, satisfaction and retention" among the majority, particularly when compared to US retailers.

While almost two thirds of respondents admitted that the US was better at customer service, 41% in the UK believed that a score of three out of five in satisfaction ratings was enough, while a further 39% were content with four out of five.

This was despite the fact that customers "make little effort to return to a retailer that was satisfactory; they only seek out those that impressed them", Michael said.