In every strategy meeting today, one metric is invariably mentioned: Customer Acquisition Cost (CAC). Whether you’re a well-funded corporate retailer, or raising your first angel round, or a well-established digital duopolist brand scaling Series C, CAC is one of the key performance metrics. “Real” spend that is neatly broken down by channel, optimised by funnel tweaks, scrutinised to the last rupee or dollar.

But there’s a metric we almost never hear about that could be costing brands far more in the long run.

Let’s call it Customer Forfeiture Cost (CFC), the residual lifetime value that is lost when a customer walks away from your business not because of price, competition, or even shifting needs, but because of a “burn”: a delivery missed or messed up, a refund that took weeks, an arrogant customer service call, or a product that failed spectacularly against the promise. In other words, when your brand hurts someone enough to make them walk away. Probably for ever.

It’s a paradox: brands are pumping thousands of crores into acquiring users, but they’re bleeding value at the other end. Yet, while CAC is a line item in every financial statement, CFC is invisible in management dashboards. CEOs don’t announce, “We’ve cut our forfeiture cost by 20% this quarter.”

Yet. every CXO knows it exists. The NPS scores, the social media complaints, the “never again” comments in reviews, the sinking feeling when repeat purchase rates fall.

Why CFC Matters More Than Ever

In every business, during the early stages each sale is a victory. Whether it was the retail chains that grew in the 1990s and early-2000s or the digital upstarts that came up through 2010s and 2020s, scale has been the mantra, and investors have poured money into scaling through the growing consumption of India 1 and India 2 customers.

Today customer acquisition isn’t cheap. The same person who clicked impulsively in 2020 now thinks twice before confirming payment. In this landscape, retention isn’t optional, it’s existential.

Every lost customer isn’t just a refund processed, or a cart abandoned. It’s the long tail of future repeat purchases that will never happen, negative word of mouth and brand distrust in the customer’s circle of influence, and increased future CAC due to declining organic reach.

Way back in 1967, management consultant Peter Drucker wrote in his book “The Effective Executive”: “What gets measured, gets managed”.

Today your CAC may be Rs. 500-1,000. If the average customer life time value (LTV) is Rs. 10,000, and a single burn causes churn after just one order worth Rs. 2,000, your CFC is Rs. 8,000, and that doesn’t even include reputational spillover.

Why We Don’t Measure It

Yes, CFC is hard to quantify. It’s not as easily attributable as ad spends. There’s usually no neat model telling you why someone never returned, because tech stacks aren’t typically designed to track emotional exits. And let’s face it, introspection about broken relationships is uncomfortable, even for management teams.

But that doesn’t mean it’s not real. If a customer leaves because your delivery executive messed up, or because your app crashed during checkout twice in a row, that’s on you, not the market. And in a business climate where sustainable growth is the mantra, LTV is king.

Ignoring CFC is like watching your roof leak and blaming the rain.

Toward a New Discipline

Brands and retailers must start measuring CFC, the value lost when customers disengage due to friction, mistrust, or neglect, and then start working on reducing it. This can be done by:

• Tracking negative exits: Build feedback loops for poor customer satisfaction scores, refund requests, support escalations, and analyse their downstream effect on churn.

• Building burn indicators: Assign internal scores to incidents where customers express betrayal or frustration, and combine qualitative feedback (customer calls, social posts) with purchase history to gauge how and when you lost someone.

• Incentivising retention, not just acquisition: Perhaps most important, align teams across functions, not just marketing, to reduce friction and foster delight. Your logistics, tech, and customer service teams are as responsible for growth as your ad agency.

The Competitive Edge We’re Not Using

In a crowded space where everyone’s vying for eyeballs, trust is the true moat. Customers don’t expect perfection – they do expect accountability, authenticity, and recovery when things go wrong.

Brands that understand and act on Customer Forfeiture Costs will quietly start building a powerful edge: deeper brand loyalty, lower CAC over time thanks to referrals and repeats and greater lifetime value per user.

In other words, real, compounding value.

As the Indian brand ecosystem matures, Customer Forfeiture Cost needs to be as visible and valued as CAC. Acquisition is the invitation; experience is the relationship. Relationships, once broken, are expensive to rebuild; if they can be rebuilt at all.

In the end, growth isn’t just about who comes in. It’s about who stays, and why.

(Written by Devangshu Dutta, Founder of Third Eyesight, this was published in Financial Express on 2 July 2025)

There’s some speculation that salespeople in luxury stores are being asked to become more friendly, so as not to turn away and turn off potential customers.

But I think it isn’t just them. I think as the economy slows, possibly everyone might become less abrasive and nicer to each other – less business around so you don’t want to turn off the spenders no matter how they’re dressed – “a king dressed as a beggar” is a good simile.

Actually that reminds me of a story someone told about 20 years ago about an Indian farmer walking into a car showroom and being treated patronizingly by the salesman. The salesman saw a more urbane customer walk in and handed the farmer off to a less agressive colleague, only to see 4 cars being driven off by the farmer’s sons after an all CASH payment.

Maybe the image is not evocative as Julia Roberts in “Pretty Woman”, but still a pretty powerful one, nevertheless.

Amazon was among the few US retailers last week to report any growth in the fourth quarter of 2008. There are, possibly, as many opinions about why Amazon has apparently bucked the recession as there are business analysts observing the sector.

I’ve shopped on Amazon.com since the year they launched. Every experience has been completely satisfactory, some delightful. On some occasions Amazon has picked my pocket – made me spend on stuff that I wouldn’t have bought otherwise, by their very helpful suggestions of what others had bought while they were browsing my selections. On other occasions it has saved me money, time and heartburn by providing comprehensive customer reviews at a click.

In my experience, Amazon’s sustainable advantage is their customer-orientation – the technology, the supply chain, the design – everything is geared to making the buying experience as good as possible. A Retail 101 principle that many other retailers – online and offline – seem to ignore every day.

A keystone of a retailer’s business is the loyalty that customers show in shopping at his or her store.

Loyal customers help to sustain a basic level of sales and reduce the need for expensive broadcast-style marketing spending that the store may otherwise have to do in order to keep the traffic and business flowing. This is as true for chain-stores as it is for independent mom-and-pop stores.

Therefore, as competition increases along with the number of stores selling the same products within a common catchment, retaining the loyalty of the customer becomes crucial, both in terms of strength of relationship (which is reflected in how much of the total spend the customer spends at the specific store) as well as the duration of the relationship.

In some parts of the more developed markets regulation may prevent the overcrowding of grocery stores and supermarkets. However, in markets such as India, one can see as many as four or five mini-supermarkets coming up on barely a kilometre along a busy street, before you even count the numerous kiranawalas. How can a store ensure a continued loyal custom from a certain share of that catchment?

Managers at modern chain stores may draw some comfort from studies which suggest that customers with higher incomes tend to be more “loyal” than customers with lower incomes. Since Indian chain stores tend to be targeted on high-income customers when compared to the traditional kiranawala, they may benefit from an intrinsically more loyal base of customers.

The variety of factors behind this “loyalty” may essentially boil down to the fact that with rising incomes the perceived benefit – lower prices, potentially better products or service – from comparing alternative stores may be outweighed by the perceived cost (time) of seeking these options and the personal adjustment involved in shopping in an unfamiliar environment. (Or, perhaps, to put it more bluntly: “rich customers couldn’t be bothered”?)

However, as the number of competing offers increases, promotional noise draws the consumer’s attention to benefits they might be missing out on, whether this is through flyers in the mailbox, kiosks set up near the consumer’s primary store, or even a full-blown ad campaign across multiple media. With every new offer or promotion, there is a temptation to try out an unfamiliar retailer.

This is more acute during recessionary times, when just about every competitor is shouting out deals to lure the customer to at least step into their store. And don’t think that high income customers are immune from the “toothpaste-discount” bait. During such times, whether they acknowledge it or not, everyone is down-shifting. It is at such times that loyalty is truly called upon. And it is also at such times when retailers start to think of loyalty schemes.

Most loyalty schemes are focussed on the objective of retaining existing customers through the use of incentives that are available only to loyalty programme members. They will ask a customer to provide some personal and contact information, and will provide some reference – a set of coupons to be redeemed during future purchases, or a card (index, swipe or smart) – that must be presented during subsequent transactions. In almost all cases, there is an attempt at getting the customer to return to the store because, as we all know, when we step into a store to redeem anything, almost without exception we end up shelling out more money than the redemption is worth. Since the value of the cash-back equivalent can be anywhere between 1 and 10 per cent (sometimes higher) customers are happy with the bribe, while the store is happy to ring up the additional sales.

However, it is surprising – or perhaps not – how many loyalty schemes turn into shams. In many such cases, the true benefits and the liabilities during the life cycle of the loyalty programme or of the customer’s relationship with the store have not been considered deeply enough. We all have multiple examples from our personal lives, which offer valuable lessons on such shambolic “loyalty schemes”. For instance:

• An oil company’s “membership card” that you pay for, whose points can never be redeemed because you never get the points statement nor a list of rewards, and the last time you see the card is when the petrol pump attendant takes it with the promise to check the status with the company.
• “Reward points” which offer a customer a second-rate bag or an uncertain brand of electrical gadget for points PLUS a cash amount that would be the equivalent of what you might spend with a pavement retailer buying a similar item.
• A credit card that looks attractive with discounts at certain merchant establishments, until you discover that someone who doesn’t hold that card is getting the same benefit even on cash payment.

Very often we find that a loyalty scheme has been conceived by an executive in charge of advertising to get the message out more cheaply (?) and focussed on a set of frequent customers. There is little link with the other parts of the operation, such as merchandising, store planning, or even promotion management, and certainly no influence. Thus, a second and potentially more powerful objective – using customer shopping data to tighten merchandising and improve the targeting of promotions – is virtually ignored.

Some companies have decided that managing a loyalty programme would offer lower benefits than the cost of maintaining the scheme, and decide to pass on the amount to the consumer directly in the form of lower prices. However, given the times, and the prospective goldmine of consumer purchase information that consumers willingly provide through such transactions (despite all vocal concerns about privacy) I would expect loyalty schemes to mushroom in the next few years.

The fact is, whatever our income levels, evolution has deemed that we become creatures of habit. Once a certain path has been followed successfully, a berry has been eaten safely, a transaction has been made satisfactorily, we are inclined to return to it again and again.

Trust, predictability and precedence are huge factors in developing loyalty, and when translated into the modern life of shopping (especially for food and groceries), this translates into the phenomenon that has been called first store (or primary store) loyalty. This can lead to as much as almost 70 per cent of grocery shopping being carried out at one store. Typically consumers will have a strong secondary store, and the balance grocery shopping would be split between multiple stores based on product availability, convenience and opportunity, deals and other factors.

But just because customers are genetically wired for loyalty to the familiar, the retailer should not treat this loyalty with contempt. Or even laziness. Because that can tip over the loyalty scheme into being a loyalty sham. And that is it only one letter away from “scam” – a dangerous label in these times of the consumer-activist.

Today is supposed to be celebrated as “Consumer’s Day”. I find that ironical, given a personal experience of poor service that occured yesterday whose effect is still lingering and will linger for another 2 weeks (with profuse apologies from 3 different people on the retailer’s side, for the delay, bad quality etc etc).

There is the saying: “Customer is King”. But it does seem that the days of kings are past.

Mahatma Gandhi went a step further and declared the customer to be God. But there may be problem with that as well – after all, how many people actually listen to God? And for all the “god-fearing” intent, how many actually act upon their morals (or their customer-service policy, in this case)?

The “God” of discount retailing, Wal-Mart founder Sam Walton, is reported to have said that the customer was the one person who could fire everyone in the company, chairman down, by deciding not to shop at their retail store. Unfortunately, many today would probably respond: “No problem, I’ll just get myself another job.”

To my mind, one of the biggest issues that causes poor customer service is the lack of ownership – someone in the retail or service organisation to actually feel that the buck stops with them, and they can take care of the problem. Much of problem lies in the processes and the structures that disempower the individual employee, but some of it is also personal conditioning.

Another key issue – transparency in approach – is highlighted in an article in today’s newspaper by Pushpa Girimaji [Advantage Consumer: Customers love transparency!]

However, how is this for another irony: the same paper presented a quote from Joseph E Levine – “You can fool all the people all the time, if the advertising is right and the budget is big enough!” Unfortunately many organisations view the consumer through this lens rather than the earlier one.

How was your day as king / god / consumer?