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Problem

Why is the cost of serving a long-standing customer far less than the cost of acquiring a new customer?

Step-by-step solution

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It is inevitable for any organization to spend more or less to serve a customer and even to acquire a new customer. It is quite true that the cost of serving a long-standing customer is far less than the cost of acquiring a new customer. It is explained below in detail:

Reasons for occurring hefty costs in acquiring a new customer:

• To acquire new customers, it needs specific research and business analysis which always leads to heavy costs.

• Serving long standing customers proceeds on routine agreements and conditions where as to acquire new customers lead to compromises and special offerings of benefits.

• Distribution channels are to be created for new customers.

• To arrange specific new performance measures to satisfy new customers demands.

• Incurs costs to capture market analysis for new customer demands.