If you ask most people to tell you what marketing is, chances are that they’ll think of customer acquisition marketing like flashy TV commercials, billboards, viral campaigns, celebrity sponsorships and even eye-catching website ads and landing pages. But few will probably think of its less glamorous but perhaps more valuable cousin: retention marketing.
Why did I say more valuable? Well that’s because there’s little point in getting more and more new customers if you haven’t figured out how to keep them, at least, that is, until their Customer Lifetime Value (CLV) has exceeded the costs of acquiring them, servicing them and all your other attendant costs as well as your cost of capital. Otherwise, it’s like pouring ever more water into a bucket with a big hole in it. And you’re probably beating a well rehearsed path to bankruptcy like the iconic web 1.0 failures: Webvan, Pets.com and Boo.com. Those companies blew billions on costly customer acquisition marketing campaigns without working out how to make any money from their customers (some would say without even having a notion of a business model!). If you’re too young to remember those companies, I’d recommend a little Googling because it’s amazing how their investors let them be so spendthrift.
The Value of an existing customer
There’s plenty of research about the value of a retained customer including:
- That it costs anywhere from five to 25 times more to acquire a new customer than keep an existing one;
- It’s easier to sell to an existing customer than a new one, partly as you don’t need to educate and convince an existing satisfied customer of the value you provide. And it has been estimated that a brand has a 60-70% chance of selling to an existing customer vs 5-20% chance with a new customer;
- Bain and Co and Harvard University found that increasing customer retention rates by 5% increases profits by between 25% to 95%; and
- An amazing 65% of all company sales come from existing customers.
So, even if we don’t take those statistics at face value, we can probably agree that marketing to existing customers is as important, if not more important, than constantly chasing new ones.
So what is retention marketing and how can you do it well?
Basically retention marketing is any and all marketing efforts directed at existing customers to encourage them to feel good about being your customer, to get them to stay longer as a customer or your brand and spend more with you. Sounds simple, no? But if so, why do so few brands really do it well?
Here are some of the things you need to consider to excel at customer retention marketing:
a) Delight your customers
Surely you won’t be surprised if I tell you that an excessive focus on improving customer satisfaction is the cornerstone of all retention marketing. Because, quite simply, if you don’t have satisfied customers then they won’t stay around very long, and they won’t be likely to refer you to friends and family either.
And the flip side of this is that the most common reason customers churn is due to poor customer service, with reportedly given that 33% of customers considering switching companies immediately after a single instance of poor customer service, with that number climbing to 60% after just two or three bad experiences.
So the first thing you should do is audit how your customers view your product and service via NPS surveys, web exit surveys, polls, focus groups, in-store visits and by analyzing social media comments and ratings and reviews. And then compare your brand, not just against your direct competitors but also against other brands that your customers use such as Amazon, Spotify, Revolut etc. That’s because your customers will compare your performance against what they see as the best in class, which quickly becomes the new standard for you to attain.
If you find out that your performance is not as good as it could be, then your homework is to constantly improve your customer experience and get feedback loops from your customers as part of a Customer Led Growth (CLG) strategy to make sure that the efforts you make do actually improve customer experience. Two inspiring examples we shared in our recent Telecoms Marketing Strategy Blog, are T-Mobile’s ‘Uncarrier’ and Maquarie’s ‘so untelco’ strategies that eliminated all elements from the business model that detracted from the customer experience, such as data limits and fixed contracts. The importance of getting this right is underlined by Forrester, which claims that companies that crack CLG grow 1.8 times faster than their competitors.
b) Find customers who are likely to stick around
A good place to start effective retention marketing is to have good customers in the first place. Of course, this might just seem common sense. But if so, then ask yourself if you’re doing it, and if not, why not?
The basis here is to analyze your current and past customers and understand which groups of customers drove the highest CLV. Who stayed around the longest, bought the most often and made the highest value purchases when they did, referred-in more new customers and gave you positive ratings and reviews. In other words, which customers drove the most overall value for your business.
Once you have identified these segments, the next step is to work out how they came to you. Did they come from one or more affiliate websites? One ad campaign? Is there something that unites them, like common demographics, behaviors or values? Because if you can find that common link, the next step is to get more people like them.
For example, if you find that your best customers come from a review site, maybe you could get more reviews. If they come from one partner website or partner business, can you offer that partner more incentives to get more of the same type of customer? If you discover common demographics among your good customers, maybe you can do lookalike marketing in search and display.
Similarly, if you find that a source systematically brings you bad customers, who are price sensitive switchers and/or have high service costs relative to the value that they bring, then you can and should pull marketing dollars from that source and reinvest it elsewhere.
c) Get good customers to refer people like them
Because people tend to socialize with others who look like them, in terms of values, behaviors, lifestyles and demographics, it’s often the case that your good customers know others who could also become good customers. For example, someone who’s just had a first child will likely know others who have just had a child. A millennial who bought her first house will likely know someone else in the same boat. A customer concerned about the environment will likely know others equally minded and so on.
So these customers can become the perfect conduit to find new and good customers for your brand, especially if the values of your brand coincide with theirs. To do this you need to create a referral program, that asks your good customers to refer you to friends and family, provides an easy and safe way to do that and offers enticing rewards and incentives for doing so.
The reason you need a program is to encourage referrals. Because most happy customers will express their satisfaction by simply repeat-buying from you and won’t tell others about you unless prompted and incentivized.
Research from the Keller Center for Research at Baylor University explained why referrals tend to bring you better customers. According to their research this was due to 2 factors:
- Better matching – why referred-in customers tend to match your brand better than non-referred-in customers is due to:
- Passive matching or your customers tendency to associate with people like them; and
- Active matching, where a customer looks through his or her contacts to find someone they know or think would like your product or service.
- Social enrichment – due to the fact that referrers not only know their friends very well, they also know your products and services intimately and can make very targeted recommendations.
As well as helping you get the right new customers, referrals can encourage existing customers to stay longer due to intrinsic and extrinsic factors. Often when a customer has recommended a brand, by becoming a brand advocate or brand ambassador, there’s a social pressure to validate that recommendation by continuing to use the brand (an intrinsic pattern reinforcement). An extrinsic factor is often that referral rewards can encourage more use of the product or service by providing more value (a free month of premium sports) or future purchases (gift card, loyalty points or discount off the next purchase).
d) Recognize your customers
A key part of customer retention marketing is recognizing the loyalty of existing customers and showing your appreciation. That can vary from as little as a thank you, or providing them with a status symbol or badge, to paying out rewards to mark occasions such as anniversaries, upgrades or customer birthdays, or creating a loyalty program with points for each purchase or action. Of course, similar to a referral program, the rewards or loyalty points are often redeemable against future purchases and so encourage repeat business.
e) Show the Value
When your customers have had great value from your product or service then why not remind them of that fact? A recent study by Rachel Gershon of UC San Diego and Zhenling Jiang of the University of Pennsylvania found that a referred-in customer was between 20-27% more likely to refer a friend if simply reminded that he or she too was originally referred to the brand. Ideally you’d do that in a simple and easy to digest format that can make them feel good about their choice to trust in you. For example:
- In the case of a green energy company, you could show what them that their consumption of your renewable energy is the equivalent of planting X trees and reducing Y tons of carbon dioxide;
- If you’re a retailer who donates shoes or glasses to the third world for each purchase made in the West, then why not show them how many shoes and glasses you have donated since they’ve been a customer:
- Or if you simply have the lowest prices, then perhaps you can show them how much they’ve saved by shopping with you, for example if you piled all those pennies one on top of another, how high would that be?
You can also use social proof, such as ratings and reviews, user generated content and user stories, as well as awards you’ve won, to remind them how other people are also getting great value from what you offer, to make them feel that you are definitely the right choice.
You can also use examples from other customers to show how they can get even more from your offerings and maybe even create some kind of gamification to try and beat others to value maximization.
f) Create a Community
Another tactic that can increase customer loyalty by creating a community where your customers feel an active part of something bigger than just buying a product or service. Good examples include giffgaff’s self help community where members can help each other solve customer support issues. This is another opportunity to enlist customers into defining your product road map and giving you feedback on your product or service as part of a Customer Led Growth (CLG) strategy. When customers feel involved in shaping your business’s future, they become more dedicated to supporting you.
g) Personalization
By tailoring your offerings to the individual needs of your customers, based on their previous purchases, browsing habits or data that they’ve volunteered to you, you can provide increased value and therefore increase loyalty.
Summary
Hopefully, we’ve given you a few good ideas about how to implement a retention marketing strategy. If you’d like to know more about retention marketing or any of the topics mentioned above, please feel free to reach out.