03 Mar Customer Retention Is King: The Future Of Retention Marketing
Customer retention has traditionally ranked low as a business priority: as recently as 2012, marketers ranked “driving sales” as their highest concern while “engaging customers” and “building customer loyalty” tied for last place. This is despite clear evidence that existing customers are more valuable than new customers.
As I covered in the first part of this series, Retention Marketing efforts have recently gained more traction. Consumers today have short attention spans and an excess of options, and marketers have had to adjust accordingly.
This trend is beneficial: according to a study by Bain & Company, increasing customer retention rates by just 5% increases profits by 25% to 95%. What’s more, 82% of companies agree that retention is cheaper to execute than acquisition, according to an eConsultancy report released last month.
The current state of Retention Marketing is one of growing acceptance, but slow adoption. Although the recent uptick in retention-related marketing roles shows progress, most companies still have a long way to go.
The future of Retention Marketing requires action on a larger scale. For long-term success, companies must commit to a new way of thinking that must be implemented from the top down. This commitment can be broken down into three components:
1. Redefine How Customer Value is Measured.
Successful marketing campaigns have high, measurable return on investment (ROI). Acquisition results are easy to measure – sales versus spend – which means a fast, easily visible ROI. Marketing campaigns are then built around driving those numbers at all costs, often by adding discounts and other tactics that eat away at profit margins.
Not only is this bad for your bottom line, there’s proof that discounts alone don’t drive sales. Lackluster numbers this past Thanksgiving are a clear indicator that customers don’t purchase on price alone. Doors opened earlier and discounts were deeper, with an average of 40-70% markdowns compared to 30-50% from years past. And yet, in-store traffic was down. Even with higher online sales, average order value (AOV) dipped from last year. The National Retail Foundation reported an estimated 11% slide in profits.
Competitive pricing has reached a boiling point, shifting customers’ priority from price to value. The difference is crucial: value includes the price of the item, but also the perceived value of the entire shopping experience. 66% of consumers would rather spend an average of 13% more with a company they believe provides excellent service over just the lowest price. Customers are clearly willing to invest with brands that provide value to them. To create a loyal customer base, companies must invest in their customers, too, beginning with redefining how they measure customer value. In acquisition, the value of the customer is the purchase value of his or her first transaction. This is the business equivalent of looking at price only – the literal profit from a one-off sale. Customer retention, in contrast, measures the customer lifetime value (CLV) of each individual, or the potential net profit during the amount of time he or she is engaged with the brand. Just as customers have evolved to look at value over price, companies must begin to evaluate lifetime value over transactional value.
2. Understand and Champion the Need for Data-Driven Technology.
The key to keeping customers engaged, thereby increasing their lifetime value, boils down to an individually tailored customer experience. Providing tailored offers and messaging elevates the customer’s entire shopping experience, which translates into goodwill toward your brand. A decade ago, this level of personalization on a large scale was impossible, but today companies have the technology to accomplish true one-to-one communication with millions of customers. Analyzing customer data helps you understand your customers based on the transactional, behavioral, and other clues they leave behind as they interact with your brand online. Taking insight from that data enables businesses to predict what each customer wants, providing a better customer experience. The longer you are able to sustain engagement with customers, the more data you are able to collect, which translates into more usable insights for campaigns. In less technical terms, the longer you are able to retain customers, the easier it is for you to understand and service them. This fosters brand loyalty in the long term.
As I mentioned in the first part of this series, until now, the biggest hurdle for implementing technology has been cost. It used to be that only powerhouses like Amazon could afford to finance an in-house data scientist army, but this is no longer the case. Growing awareness of Retention Marketing has resulted in third-party vendors that provide the data interpretation necessary to drive a personalized, customer-centric approach.
The true hurdle that remains, then, is for companies to recognize and champion the need for data-driven technology, whether in-house or through a vendor. In other words, companies must be willing to invest in the technology in order to see results.
3. Execute a “Hard Reset” and Restructure from the Top Down.
If the previous components are changes in perspective, the final step is acting on those changes. Companies must execute a “hard reset” on how they define business profitability: Retention Marketing should be on par with, if not ranked above, acquisition efforts.
Proper execution of this reset requires change from the top down. Customer retention must be established as a company-level and CEO-level goal. 50% of the marketing budget should be allocated to retention; at the very least, a separate budget should be created with the purpose of driving customer retention.
The company’s Marketing Executive must recognize Retention Marketing as a full-time endeavor. This means creating a Retention Marketing position instead of adding customer retention to the job description of the marketer in charge of acquisition efforts.
Finally, Managers should weigh acquisition and retention results equally. Performance reviews for employees and results for campaigns should be structured to measure different metrics, so that acquisition numbers don’t take priority.
Company-wide restructuring is a drastic but necessary measure for true success in customer retention. If every acquisition is a short-term sale that ends the moment the customer completes a purchase, retention is a long-term investment. Businesses are handsomely rewarded when effective Retention Marketing strategies are implemented.
The future of Retention Marketing begins now. Are you ready to invest?