Acquisition drives growth more than retention
A substantial percentage of a brand’s buyers this year will not buy it in the next year (see our previous newsletter how brand market share and category purchase frequency impact the level of leakage). On average a brand’s buyer base consists of about 50% buyers retained from the previous year and 50% newly acquired buyers (although some of them will have bought in previous years). To grow their buyer base brands could focus on trying to retain more of their existing buyers or on trying to acquire more new buyers.
Which of these strategies is more common among growing brands? An investigation of some 1800 large brands in seven countries shows that brands growing penetration have almost the same level of leakage as brands with shrinking penetration. What makes them grow is their ability to attract more new buyers: On average the contribution of higher acquisition rates is 2.5 times larger than the impact of higher retention rates. This finding strongly supports a focus on acquisition rather than retention.