Here is a thing that you need to consider - how are repeat customers fostered? By being attracted to new companies and getting a good rebate. These people who will be truly satisfied with the new products are more likely to become loyal customers.

Let's start from the beginning:
Customer A signs up for a cell phone. There is dozens of choices out there. Which provider should they go with? Which cell phone? Which plan?

Due to this intense competition, cell phone companies actually have to spend a substantial amount of money attracting these customers to them. They need to have good promotions on the phones, economical plans..

Without these expensive incentives customers will migrate to the place where they could get the best deal.

Now these people are locked into a cell phone plan. They are set for the next 1 or 2 or 3 or even 4 years. Their contract carries huge penalties if they were to cancel. While in a contract, the company does not have to worry about attrition.

Once their contract is over, IF they were SATISFIED with the price and the quality of service, it will be a no-brainer for these customers. They will most likely continue on and resign a new contract.

This has many benefits for existing customers:
- they will be eligible to receive a new cell phone for free or for a nominal charge
- they will also be able to lock in their current plan if it suits their needs, or they will be able to choose a new plan.

The promotions offered to existing customers are quite cheap- a new cell phone won't cost the cell phone companies substantial amounts of money, in fact, profit margins on cell phones is low compared to profit margins made from airtime.

Essentially, the company spends LESS money on advertising, which produces HIGHER revenue for existing customers.

Now what if an existing customer leaves after their contract is over. The cell phone company will now have to actively spend huge amounts of money trying to attract someone new. This is a necessary fact if the company would like to retain their large customer base.

Why are refers greater for repeat customers? Often there is a referral bonus, where current customers are able to offer their friends and family discounts if they sign up for a product, and they themselves will get credit as well. This is a VERY cheap way of attracting new customers, since it comes from credible word of mouth from a sources who is trustworthy. The source who tells people about the service also gets compensated, so it is really a win-win situation, and the word of mouth about the product is spread without the company spending a single penny on adverting other then the compensation value.

If a firm concentrates on current customers, this might be seen as wasted revenue. These people are already committed to their cell phone companies. They are locked into a contract. Why spend advertising money on them? They will not be interested in commercials on TV or radio which break down the service for them - they are already familiar with the service. As well, how will the company ever foster relationships with new customers if they were to focus on existing ones?

Most companies will try to bring in new customers, which they hope will eventually become long term customers, but without that initial outreach, this would be impossible.

I think that this strategy is working and should be implemented, however, loyal customers need to be rewarded as well.

For example, my cell phone company offers me the following incentives:
- I accumulate points with every dollar I send, which I can then use to buy new cell phones, accessories...
- I get 20$ in air credit when I refer someone, and they also get a 20$ credit
- After 2 years I can get a new cell phone for free

These activities are cheap, and satisfy me. I am also eager to refer friends since it benefits me.

This seems to be done in many industries such as cable, telephone and internet firms. It is less persuasive in retails store - perhaps new customers are offered 10% rebate if they open up a store credit card. This offer however is extended to even existing customers, and since store credit cards charge a whopping 28% interest, this endeavor is very profitable. It seems to be the norm in service providing firms who are in a competitive environment. Remember, he who initially attracts the customer, and pleases them will have the opportunity to create a life long loyal relationship.

In undergrad, I worked in a cell phone company, and you would be surprised to see how much they would lower their price to attract a new customer. I would be able to offer the phone for free, free voice mail, free caller ID, free accessories... these offers are expensive, but are worth it since we would make a high profit on their airtime usage over the life of their contract.