Why are marketers so keen to keep attracting new customers? - Part 1 -

Hello everyone. I am Hayashi, the representative of Monosus.
So far, I have talked about the idea of open marketing four times.
This time, I would like to consider the problems with existing marketing methods from a numerical perspective.

The obsession to keep attracting new customers

What I always feel in the field of marketing is that many marketers have something resembling an obsession that "if we don't keep attracting new customers, our company won't survive."

Of course, I don't think it's okay to stop attracting new customers.
But it feels like the balance is way off.

At the top of any marketing meeting is always how to acquire new customers.
Also, even if you are having a meeting focused on existing customers,
The question is, "How can we get existing customers to buy?"

However, as long as you still have to think about how to get a customer to buy, that customer may be an "existing customer," but not a "regular customer" in the true sense of the word.
I just bought your company's products and services,
It's nothing more than a list of people you can reach without spending too much on advertising.

What is a true regular customer?
"We'd be in trouble if your company or products disappeared."
These are customers who think this way and continue to buy from us without us having to pressure them to buy.

I think these types of customers are:
rather than being customers who bring profits to the company.
Customers also benefit from the company's products and services.
In other words, I think it is a relationship in which we exchange values.

It's nearly impossible to build this kind of relationship with every customer.
I think many companies are far too casual about trying to increase the proportion of these customers.

"I just want them to keep making this product."

I would like to talk a little more specifically about this.

About three years ago, I worked on a project for a company that manufactures and sells hair care products for women.

The initial consultation we received was about how to attract new customers,
The goal was to increase the proportion of purchases from existing customers.

When asked about the current state of marketing,
The majority of the marketing budget was allocated to acquiring new customers through the company's mail order sales channel, which was its main sales channel, and to direct mail to existing customers to encourage them to make repeat purchases.
In particular, they had a hard time attracting new customers.
If you have experience in online shopping, you will understand this well.
In order to attract new customers, the company distributed samples and offered trial products at discounted prices, but had problems retaining customers.

On the other hand, after listening to various stories, I learned that this company's hair care products are,
It has become clear that this is a very powerful product.
As a test, I asked, "How many of your customers have been buying from you for more than 10 years?"

The numbers that came back to us from the person in charge were astonishing.
(The figures I will introduce from now on are related to the company's specific performance, so
We will introduce it by changing the number of digits and content.)

It wasn't a little, it was a lot.
However, the number is not enough to support the company's overall performance.
This figure was less than 10% of existing customers with a purchasing history in the past year.

But think about it.
A single company's hair care products, such as shampoo, conditioner, and treatment
Continuing to use a product for more than 10 years is clearly abnormal consumer purchasing behavior.
We noticed that there were not 100 or 1,000 such customers, but more than 10,000.

So we decided to interview these customers (hereafter referred to as regular customers) to find out why they have continued to use our service for over 10 years.

Among the many things I noticed, there were many comments that were deeply related to the theme of this session.

it is,
"Is there anything you would like to ask of us (the hair care product company)?"
When I asked this question, most people answered, "Nothing in particular..."

"I have no complaints, but if I had one request,
Anyway, I want them to continue making this product."
He said.

The characteristics of regular customers that emerged from this interview were as follows:
It is something like this:

They have a problem that perfectly matches the objectives that were aimed at when the product was developed. Their problem is solved by the product, and they are aware of this. They have become accustomed to continuing to use the product, and feel stressed when a situation arises in which they cannot use it. They personify the company that provides the product, and feel a sense of human trust. They have a clear intention to continue purchasing the product.

I put these together and was convinced.
They believe that marketing efforts should be focused on attracting regular customers.

If we don't keep attracting new customers,
A structure that makes it impossible for business to continue

Now let's take a look at some concrete numbers to see what it means to have regular customers.
I have just introduced the example of hair care products, so I would like to consider a similar business model, mail order beauty products. (This has nothing to do with the figures of the companies mentioned earlier.)
I've exaggerated it quite a bit to simplify the story, so
I'm sure there are some parts that don't apply to your business,
I hope you will read this while bridging.

Customer acquisition flow diagram

In the case of beauty mail order, it is rare to suddenly acquire new customers.
In many cases, they distribute samples or sell trial products at low prices.
This is your potential customer.

Now, let's say the company wants to attract 10,000 new customers per year.
If we assume that the rate at which potential customers who try out a product actually purchase it is around 20%,
You need to generate 50,000 leads per year.
(In most cases it is lower than this, and rarely exceeds 30%.
This does not apply in some cases where the trial purchase price is set high in advance, raising the hurdle.)

Even if they do purchase the product, those who will continue to purchase the product in the second year are
It's roughly 30%.
Furthermore, about 70% of customers who purchase in the second year tend to remain with us from the third year onwards.
This means that after three years, approximately 1,500 people will remain as regular customers, and after ten years, approximately 150 people will remain as regular customers.

If it is a service-related site, the conversion rate from potential customers to new customers will be high,
As a result, the number of potential customers acquired tends to decrease.
The situation may differ slightly depending on the industry and business model, but the important thing here is
The percentage of people who end up becoming regular customers is very low.

Actually, there is one more important thing.
If you continue your business at this pace, your customer base will eventually stop growing.
This is a bit of a rough estimate, but from the first year to the tenth year, 10,000 new customers, 30% retention rate in the second year,
If you continue your business with a 70% retention rate from the third year onwards, the changes in customer numbers over a 10-year period will be as shown in the table below.
(The number of customers here refers to the number of customers who have made a purchase at least once in that year.)

The number of customers increases steadily until the fifth year.
Growth slows after the sixth year and there is little growth thereafter.
In addition, the number of customers who have been purchasing continuously for more than three years, which is an indicator of a regular customer,
The number of people increases steadily until the eighth year, but after that the growth rate slows down.
It will almost stop increasing.

The figures vary depending on the industry and business type, but
Roughly speaking, customers can be structured as follows:
Perhaps this is the structure that often exists.

So what is the problem with this structure?

The number of customers will decrease significantly as new customers are acquired less.

This can be clearly seen by looking at the figures for the 10th year.
Despite acquiring 10,000 new customers, the total number of customers is 19,596.
This means that roughly half of the total customers were new customers acquired that year.
Since the number of customers is proportional to sales, the structure is such that a large portion of sales is dependent on new customers, who are extremely costly to acquire.

If you are not profitable within the sixth or seventh year, you will be forced to reassess your business model.

In the sixth year, the increase in the number of customers slows down, and in the seventh year, the increase in regular customers slows down.
If the company is not profitable at that point, then its gross profit structure itself will have collapsed.

The cost of acquiring new customers often gets worse every year

The cost of acquiring new customers will improve steadily over the first few years,
Beyond that, it tends to get worse.
In other words, the revenue structure will gradually deteriorate.

The main topic that always comes up in meetings as a way to improve this situation is:
It's about increasing the acquisition of new customers.

While there is some truth in this argument, I believe this is how marketers and business managers actually feel.

"I'm so scared I can't stop trying to get new customers."

Even though they know that acquiring new customers, which accounts for the majority of sales, is hugely costly, they are afraid of losing sales and cannot relax.
In other words, the structure has become such that the business cannot continue unless it continues to attract new customers.
However, as I mentioned earlier, if you sell the same product for five years,
It will almost certainly become less cost-effective to acquire new customers.
There are many possible reasons for this, including a lack of novelty in the market, competitive pressure, and market saturation.
So they start selling new products to attract new customers.

However, I would like to take another look at the trends in customer numbers by adding more dimensions.

This time we have also included the number of customers who have been continuing for more than five years.
If you look at the red shaded area in the table, you will see that
In fact, by the 10th year, about 10% of customers will have been repeat customers for 5 years or more.
Although growth is sluggish, the percentage of customers who have been continuing for three years or more is still about 23%.

So what if the percentage of customers who have been with us for five years or more doubled?
And if it was three times that...

No need to do the math to know that your business performance will improve dramatically.

However, this is nearly impossible to achieve with the same business structure.
Open Marketing is also a concept that questions this structure.

After doing some detailed calculations, I noticed something.
it is,
"The number of customers a company needs to continue to exist and be profitable is
Much less than I expected.”

That is what it means.

This has gotten long, so I'll end it here for now.
In my next post, I'll go into more detail about why companies can still make a profit even with a smaller number of customers.