24 Feb Why Customer Retention Is King: The Evolution Of Retention Marketing
The primary objective of Retention Marketing – to keep customers engaged and interested in your products and services – has not changed, but the way companies approach customer retention has. Thanks to constantly evolving technology and customer expectations, Retention Marketing is currently in the midst of a major shift towards customer-centric engagement and personalization.
Having founded two companies focused on increasing customer engagement and retention, I have been able to observe the changes firsthand. In this two-part series, I will analyze how the space has evolved in recent years, and how technology will affect the future of Retention Marketing.
Retention Marketing has traditionally taken a backseat to acquisition efforts, as demonstrated by the fact that customer retention usually has a much smaller budget allocation. The extent of companies’ customer retention tactics often comes down to generic loyalty programs, nurture campaigns, and discounts. While some companies add basic automation to their nurture campaigns, which trigger timed communications when customers first purchase or sign up, these campaigns are still a one-size-fits-all approach.
When I first entered the industry over a decade ago, customer retention-focused roles were few and far between, which reflected the low priority Retention Marketing held at the time. However, my more recent observations show a clear shift in priorities; more and more companies are allocating resources to focus on customer retention.
In a recent Retention Science study, 70% of marketers said that their Retention Marketing is average at best, with room for significant improvement. More than anything, the fact that marketers are acknowledging the need for growth in customer retention is a sign of the changing times – and the rising importance of Retention Marketing.
This new focus on Retention Marketing is mostly due to customer choice having reached an all-time high while attention spans have dipped to an all-time low. This means companies need to take a more customer-centric approach in order to keep them interested. Customers now demand a more engaging and personalized experience, and companies must respond accordingly in order to nurture them into advocates.
Nurturing as many of your customers into advocates as possible makes good business sense. Research over the past few years continues to prove that existing customers are worth more than newly acquired ones. According to Gartner Group, 80% of your company’s future revenue will come from just 20% of your existing customers.
While Adobe reported that online retailers spend nearly 80% of their digital marketing budgets acquiring shoppers, for each 1% of shoppers who return for a subsequent visit, overall revenue will increase by approximately 10%. This means if online retailers retained 10% of their existing customers, they would double their revenue.
The numbers don’t lie: it’s clear to see that customer retention is more valuable than acquisition. So with all this evidence available, why are so many companies still primarily focused on acquisition?
One reason could be that acquisition campaigns yield faster, more measurable results than customer retention campaigns. Acquisition’s Return on Investment (ROI) can simply be calculated by comparing how much you spent on marketing versus how many customers made a purchase. In contrast, customer retention takes into account the potential value of a customer over time, based on their behavior and spending habits, rather than solely focusing on the results of one transaction. As a result, the effectiveness of a customer retention campaign takes longer to measure than just counting one-off sales.
Another reason is that successful retention campaigns require more advanced technology than acquisition campaigns. As a marketer myself, I understand the foundation of customer retention is knowing what your customers want and providing a personalized experience. The key to figuring out what they want lies in interpreting the trail of data they leave behind from transactions and online behavior. When analyzed correctly, this data can provide the in-depth understanding companies need to deliver relevant and personalized content. Companies already have the data and information they need; the main challenge is in interpreting it.
Until recently, only large companies like Amazon could afford the technology and data scientists needed to interpret this customer data. However, as Retention Marketing becomes increasingly important, there is more demand for third-party vendors to provide that technology as a service. This allows companies who can’t afford the technology in-house the ability to build their Retention Marketing campaigns around customer data. This trend effectively levels the playing field as long as companies embrace the available technology.
The demand for this kind of technology demonstrates how much the landscape has changed since the early days of Retention Marketing. Marketers now see customer retention as a priority instead of a secondary strategy to acquisition efforts. The key to effective customer retention lies in understanding and anticipating the needs of customers and structuring their campaigns accordingly. In the second part of this series, I’ll talk more about the technology needed for successful customer retention strategies and why companies must take action in order to stay competitive.