Australian retailers could be leaving AUD$2 billion on the table by focusing on retaining the wrong customer, according to a new study by advertising effectiveness expert James Hurman and B2C CRM leader Klaviyo.
The report It’s what you do with them will be unveiled to brands at K:SYD by Hurman. Based on analysis of $1.2 billion in spending across 1.7 million customers of ecommerce retailers in Australia and New Zealand, the findings challenge some of marketing’s most accepted ideas: that more customer retention is always better, and that loyalty programs reliably drive growth.
The data, aggregated by Klaviyo agency partners Overdose Digital and Andzen, reveals that retailers with high retention (over 50 per cent) often saw revenue decline or stagnation, while those with lower retention (under 50 per cent) but increasing customer spend saw significantly faster growth. In fact, brands that retained fewer — but higher spending-customers — grew at more than three times the rate of brands with high retention but flat or declining spend.
“There’s a piece of advice we’ve all heard so often that it’s almost a law of nature. That is, acquiring a new customer costs a business five times as much as keeping an existing customer,” said James Hurman, founding partner of Previously Unavailable and co-founder of Tracksuit. “What we found in the Klaviyo retailer data turns that old wisdom on its head. It’s not how many customers you retain, but rather what you do with them that really matters.”
Based on Australia and New Zealand’s $58 billion ecommerce market and an average 24 per cent customer retention rate, Hurman estimates retailers are potentially leaving $2 billion on the table by focusing on customer retention instead of growing revenue from existing customers.
Not all retained customers are good customers
The study tracked customer spend over a two-year period to distinguish high-value or ‘right’ customers from low-value or ‘wrong’ customers. Customers who stayed loyal over time but spent less over time dragged down business performance. For example, one retailer with a 39 per cent retention rate saw those customers spend 46 per cent less in 2024 than they had in 2023 — driving a 14 per cent revenue decline. Another retailer in the same category, with just a 14 per cent retention, saw customer spend rise by 14 per cent more in 2024 and revenue surge by 130 per cent between 2023 and 2024.
“Retention rate is too blunt a metric. What matters is whether the customers you keep are worth keeping,” said Hurman. “Retailers should focus less on retention rate, which is likely to be a factor of their category and their relative size in their category, and more on changes in customer spending over time, which can be impacted by marketing and customer experience.”
Loyalty programs ≠ business growth
The report also analysed the link between loyalty programs and business performance. While retailers with loyalty programs did retain more customers (30 per cent vs. 20 per cent), they grew much more slowly — just 14 per cent average revenue growth versus 48 per cent for those without. In other words, retailers without loyalty programs grew at more than three times the rate of retailers with loyalty programs.
“While this is not an outright damnation of loyalty programs, the data tells us that there are more effective ways to increase the spend of retained customers,” said Hurman.
Emotional connection drives spend, especially through service
To understand how retailers can increase customer spend, the report also surveyed 500 consumers across Australia and New Zealand, revealing that customer service is the most powerful driver of emotional connection to a brand. Great service builds loyalty, while poor service — especially being ignored, kept waiting, or unable to speak with a human — quickly erodes it.
“While a high-quality product, a strong brand and advertising are important for positive emotional connection, the data shows they pale in comparison to delivering a great customer service,” said Vicky Skipp, director of mid-market and enterprise at Klaviyo. “More importantly, neglecting customer service leading to poor experiences is the fastest way to destroy positive emotional connections you’ve cultivated with your product and brand.
“Avoiding these poor experiences is critical for growth. And to avoid them, brands need to have continual visibility of where and when they’re likely to happen,” said Skipp.
