Why is it more cost-effective to keep existing customers happy than to acquire new customers?

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pohnpei397 | College Teacher | (Level 3) Distinguished Educator

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It is more cost effective to keep current customers happy than to find new customers simply because marketing costs much more money (and is less likely to end up reaching a potential new customer) than giving good customer service in your store or online business.

When a business tries to reach new customers, it has to spend money on marketing.  It has to engage in relatively mass appeals to broad groups of potential customers.  It knows that most of the people who hear its message will not buy, but it hopes that it will reach enough people who will choose to buy.  In short, a relatively large amount of money is spent on marketing and much of it will be spent on reaching people who are not going to buy.

By contrast, good customer service is very efficient and relatively cheap.  You are going to have to pay your workers to be at work anyway, so having them give good service does not cost you very much more than you would pay for bad service.  Just as importantly, you know that your good customer service is reaching a person who is going to buy from you.  People who are being affected by your customer service are, by definition, people who have bought from you or are trying to do so.  Therefore, you know that every dollar that you spend on good customer service is reaching a person who is a likely customer. 

Customer service, then, is cheaper than marketing and is much more likely to reach people who want to buy from you.  This makes keeping current customers happy through good customer service much more cost effective than spending on marketing to find new customers.

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