Entrepreneurship and Small Business (ESB) Certification Practice Exam

Which statement accurately reflects the cost-effectiveness of maintaining existing customers?

1. It is less expensive to keep current customers than to acquire new ones

2. It is more cost-effective to acquire new customers than retain existing ones

3. Keeping current customers has no cost associated with it

4. Customer retention is irrelevant to marketing strategies

The correct answer is: It is less expensive to keep current customers than to acquire new ones

Maintaining existing customers is generally considered more cost-effective than acquiring new ones due to several key factors. First, the costs associated with acquiring new customers often include marketing expenditures, promotional offers, and sales efforts that can be substantial. In contrast, existing customers are already familiar with the brand and likely have established trust and loyalty, which can reduce the costs involved in selling to them. Moreover, existing customers tend to have a higher lifetime value, meaning they are likely to make repeat purchases over time. This ongoing relationship can lead to increased revenue streams without the need for significant additional marketing efforts. The resources spent on customer service and engagement with current customers can yield a high return on investment, making it financially advantageous to focus on retaining them rather than pursuing new clients. Consequently, companies that prioritize customer retention often benefit from increased customer satisfaction, loyalty, and word-of-mouth referrals, all of which enhance the overall cost-effectiveness of their marketing strategies.