[TL;DR: Almost every SME prioritises loyalty over acquisition. Marketing science disagrees. Byron Sharp's research across 130+ brands shows 82% of successful growth campaigns work by reaching new buyers, not squeezing more from existing ones. Here is what that means practically for your ad budget.]

The Loyalty Myth: Why Focusing on Existing Customers Is Keeping Your Business Small

Most SMEs believe their best customers are their most valuable marketing asset. Treat them well, keep them coming back, and growth follows. It sounds right. It feels right. And it is almost completely wrong.

What the Research Actually Says About Customer Loyalty

Byron Sharp is a Professor of Marketing Science at the Ehrenberg-Bass Institute in Adelaide, South Australia. For four decades, the Institute has analysed single-source consumer panel data across 130+ brands in 13+ product categories. Their findings are the most empirically robust body of work in marketing. And their central finding on loyalty will make most small business owners uncomfortable.

Penetration means reaching new people who have never bought from you before. Loyalty means getting existing customers to buy more often.

Sharp analysed the IPA Effectiveness Awards, widely considered the gold standard for proven marketing success. The results were stark:

• 82% of winning campaigns achieved growth through penetration (new buyers)
• Only 2% succeeded primarily through loyalty strategies
• Among Gold winners: 21 penetration campaigns versus 2 loyalty campaigns

The Double Jeopardy Law: Why Small Brands Get Hit Twice

Sharp's research identified something called the Double Jeopardy Law. Smaller brands suffer in two ways simultaneously: they have fewer buyers (first jeopardy) and those buyers are slightly less loyal (second jeopardy).

Look at washing powder data from UK supermarkets:

The implication is profound: you cannot grow your business by making existing customers more loyal, because loyalty barely varies with brand size. The only thing that does vary significantly is how many people know you and buy from you at all.

Small brands are not small because their customers are disloyal. They are small because not enough people have ever bought from them.

The "5x More Expensive" Myth You Have Heard Too Many Times

"It costs five times more to acquire a new customer than to retain an existing one."

You have probably heard this at a networking event, in a business blog, maybe from a marketing consultant. Sharp's research found no empirical support for this claim. It gets repeated because it validates what people already want to believe: that looking after existing customers is the smart, efficient play.

The real picture is more complicated. Yes, a loyal customer who has already bought from you is easier to convert on any given transaction. But if your total growth strategy is pointed at people who already know you, you are fishing in an increasingly small pond.

Every year, heavy buyers moderate. Byron Sharp calls this the Law of Buyer Moderation. The customer who bought from you five times last year will naturally buy less frequently next year, regardless of how well you treat them. Meanwhile, the pool of people who have never heard of you stays enormous.

Ehrenberg-Bass data on customer fluidity across years illustrates this clearly:

• Customers who bought from you heavily in Year 1 account for 43% of revenue that year, but only 34% in Year 2.
• Non-buyers in Year 1 contribute 0% that year, but 14% in Year 2.

What This Means For Your Digital Marketing Budget

Here is where this stops being academic and starts affecting what you should actually do.

Most SMEs I work with have Google Search Ads running. They are capturing people who are already searching for their product or service. That is good. It is physical availability. Byron Sharp makes a critical distinction here: Google Search is not advertising in the traditional sense, it is physical availability. It catches people at the exact moment they have already decided to enter the category.

The problem is that only a tiny fraction of your potential market is in-market at any given moment.

The "95/5 rule" from the Ehrenberg-Bass Institute suggests that at any point in time, roughly 95% of your potential buyers are not currently shopping for what you sell. They are living their lives, not thinking about your category at all.

If your entire digital presence points at the 5% who are actively searching, you are ignoring 95% of your future customers. And those future customers will think of whoever comes to mind first when they finally do enter the market. That mental availability is built over time through broad reach, not through Google Search campaigns targeting only active intent.

For most SMEs, this translates to a practical question: are you investing anything to reach people who are not already searching for you?

That means brand-level content. Social ads that tell your story to people with no current intent. A blog that builds topical authority. Local brand presence. Community involvement. These are not soft nice-to-haves. They are the mechanism through which you build mental availability across the 95% of your market who are not yet ready to buy.

Mental Availability: The Actual Goal of Marketing

Sharp describes mental availability as "a brand's propensity to be noticed or come to mind in buying situations." It is distinct from general brand awareness. You can be vaguely aware of a business and still not think of them when you actually need a plumber, accountant, or signage supplier.

Mental availability is built by being linked to multiple Category Entry Points, the specific moments, occasions, or triggers that cause someone to think about a category.

For a commercial cleaning company, Category Entry Points might include: moving into a new office, getting a hygiene complaint, losing a staff member who handled cleaning, preparing for a client visit. A business with high mental availability gets thought of across all of these situations. A business that only runs Google Search Ads gets thought of when someone types "commercial cleaning Adelaide" but not across the dozen other triggers that precede that search.

The implication for your digital strategy: create content and run campaigns that link your brand to a wide range of entry points, not just the final moment of active search.

This is why SEO content matters. A roofing company that publishes articles about how to check for storm damage, what causes flashing failure, and how long a metal roof should last is building mental availability across the full range of entry points, not just "roofing company Adelaide."

The Practical Shift for an Adelaide SME

To be clear, this does not mean abandoning Google Ads. Google Search Ads are excellent at converting existing demand. You need them. But if that is your entire strategy, you are playing half the game.

Here is how I think about the split for most SME clients:

The ratio depends on the business and the category. Fast-moving, high-frequency categories (pest control, plumbing) can lean heavier on capture because the need arises urgently and unpredictably. Slower, higher-consideration categories (manufacturing equipment, commercial fit-outs) need heavier investment in building because buyers take months or years to move from "aware" to "searching."

What most SMEs get wrong is they wait until someone is searching to engage them. By then, half the battle is already over. The businesses with strong mental availability are already on the shortlist before the Google search happens.

FAQ

Should I stop investing in customer retention entirely?

No. Retention and client experience still matter. A business that does poor work or ignores existing clients will churn. But there is a difference between delivering good service and building your entire marketing strategy around trying to make existing buyers buy more. Byron Sharp's point is not that loyalty is unimportant, it is that loyalty grows as a byproduct of growing your customer base, not the other way around. The Ehrenberg-Bass research found that when businesses invest heavily in loyalty programs, they typically see modest frequency gains among heavy users who were already buying frequently, but almost no improvement in penetration. Your existing loyal customers will keep buying if you keep delivering. Your growth comes from elsewhere.

If most marketing wins come from new buyers, why does everyone say "focus on retention"?

Partly because it feels more controllable. You know your existing customers. You can measure repeat purchases. You can send them emails. Reaching new buyers is harder to attribute and requires patience. Partly because the "retention is cheaper" idea has been repeated so often it has become received wisdom without anyone checking the data. And partly because some advisors have a financial interest in selling CRM tools, email platforms, and loyalty programs. Byron Sharp's research is uncomfortable for that industry. The data does not support the premise.

How does this affect my Google Ads strategy specifically?

It means Google Search Ads should be part of a broader strategy, not the whole strategy. If you are running Search only, you are capturing demand that already exists. That is efficient. But you are not creating new demand or building the mental availability that brings more people into your search consideration set over time. Adding brand campaigns, expanding to Display and YouTube, or investing in SEO content to target informational queries all serve to build the mental availability that makes your Search campaigns more effective over time. The businesses that dominate Google Search results do so partly because they have been building brand presence everywhere else. The search volume they capture is partly a result of that.

Does this research apply to local service businesses in Adelaide, or is it only relevant to big brands?

The Ehrenberg-Bass Institute research spans categories and brand sizes, including service businesses. The patterns hold. A small electrical contracting business in Adelaide faces the same Double Jeopardy dynamic as a national consumer brand: it is small because relatively few people have bought from it, not because its customers are disloyal. Local context matters for where you reach people and how you frame your message. But the fundamental mechanics are the same. Growth means more buyers, not more purchases per buyer.