Customer retention is an important metric of success and indicates that a business is providing value to its customers and meeting their expectations. This leads to increased loyalty, which is vital for long-term success.
Customer retention is a multifaceted endeavour, spanning from having a solid understanding of customer sentiment through to the use of predictive analytics to prevent churn. This article provides an overview of some of the essential marketing techniques used to enhance retention so that those loyal customers will continue their patronage for years to come, and new customers will follow suit.
Cost Per Acquisition vs. Retention
It is well known that the cost per acquisition tends to be around five times higher than the cost of retention. In addition, increasing retention rates by 5% has proven to increase profits by 25% to 95%.
Various sources also state how the success rates of selling to existing customers can be as high as 70%, one example being that in the online sale of apparel where repeat customers spend more than twice as much between months 24-40 than in the first six months. In addition, loyal customers tend to refer new customers, lowering the cost per lead. Retention should therefore be of top priority for any business.
Market Segmentation
In order to create the most effective retention strategy, organisations must tailor them to the distinct segments making up their target audience. As well as standard research through customer surveys and so on, behavioural segmentation is another helpful method for classifying customers.
By understanding customer behaviour, businesses can identify the groups of customers who are most likely to respond positively to different types of offers or rewards. This allows them to tailor their loyalty programs and other incentives to target the customers that are most likely to remain loyal. In addition, behavioural segmentation can be used to identify customers who are at risk of churning and then take proactive steps to retain them.
By understanding customers’ habits and preferences, businesses can also develop personalised offers that appeal directly to the customer’s needs, thus increasing the chances of successful retention.
In a recent article on understanding and developing customer lifetime value (LTV), the benefit of identifying the most valuable customers was discussed. Identifying those customers allows one to reverse engineer their journey and understand why they are engaging with a company and spending the amount that they are. Not only does this allow businesses to capitalise on those customers through their messaging, but it helps in the development of methods to target similar customers who have the potential to spend as much money with the business.
However, note that the impending obsoletion of third party cookies due to privacy concerns means that gathering behavioural data will soon require a new approach.
Predictive Analytics
As mentioned, it is possible to ascertain the likelihood of churn, and predictive analytics is the way to do it. Two models that can be used for this purpose are below.
Propensity Models
Propensity models predict future customer behaviour based on known information. In this case, the behaviours customers demonstrate before leaving are analysed, so that when other customers behave in the same way, the risk of them leaving is established. They can then be targeted with a specific contact strategy designed to improve their sentiment towards the brand.
As a concrete example, when the model flags a customer as being at risk of leaving, it may suggest the ‘next best action’; in other words, the next conversation to have with the consumer. Another example is to prevent users clicking off a website; if this action is likely, they could be offered discounts as a way to keep them on the site and submit their contact details. The actions triggered will be based on what has proven successful in the past.
Propensity modelling can be used for predicting engagement and conversion, amongst other use-cases.
Collaborative Filtering
Collaborative filtering is used to tailor recommendations based on behavioural segmentation and is the method used by companies such as Amazon and Netflix. This method simply filters data from many users and make recommendations that the model knows to be the most effective.
Using the Customer Journey to Prime Customers for Retention
The path to retention begins long before purchase. Providing the target audience with a positive experience throughout their journey is a way of pre-paving their ongoing relationship with the company. First impressions go a long way, and even if the product or service falls short of their expectations after the first purchase, there is still a chance they will become returning customers.
It is therefore important to capitalise on the different stages of the customer journey and develop strategies to provide value at every stage.
At the awareness and consideration stages, content must not only raise awareness of the products and services; it must also be valuable and useful for customers. It should be based on keyword research and other tactics used to determine what questions the target audience are asking. Businesses must also make the effort to engage with customers on social media at this stage, responding to comments and questions, and building relationships.
At the purchase stage, the purchase process should be as easy and convenient as possible, offering incentives for repeat purchases as the marketing budget allows.
Creating a Customer-Centric Experience
A customer-centric experience is one that puts the customer first and focuses on meeting their needs, making them feel appreciated and prioritised. Providing a personalised experience is an important step and may involve providing custom product recommendations or personalised discounts and incentives within the loyalty programme.
It goes without saying that excellent customer service should be a priority for any organisation looking to maximise retention. Customer service agents must respond quickly to customer inquiries and offer genuinely helpful advice, while businesses must provide a hassle-free refund and returns policy. Another vital element of retention is to align marketing and customer service departments.
To truly provide a customer-centric experience, customer feedback must be taken on board where possible, and better yet, customers should be made aware as to when their suggestions have been implemented. They will then know they have been listened to, which will strengthen their positive association with the brand.
Unexpected Rewards
In a recent article on gamification, the concept of variable rewards was addressed. These are rewards that come at unpredictable intervals and/or the customer would not predict what the reward would be. Surprising customers in this way will not only give them a rush of positive emotion, but it will trigger their inherent tendency to reciprocate (as does any reward). Combining a reward with a request that they leave a customer review, for example, is a powerful way to generate advocacy.
Rewards do not need to be reserved for existing customers. They can be used from the very start of the customer journey, encouraging the target audience to inch their way towards purchase. (These principles highlight the importance of understanding consumer psychology when designing a marketing campaign.)
Creating Brand Advocates
Creating brand advocates is a powerful way to reduce the cost per acquisition. In its most simple form, it may involve the likes of customer reviews. These reviews may be generated through email marketing combined with incentives where the marketing budget allows. However, it can be much more than that.
It may involve building a community around the product or service – an active community that draws the curiosity of prospective customers. It may also involve building an influencer strategy.
Another way to have an extensive reach through social media marketing without working with influencers is to encourage user generated content that promotes the brand.
Marketing Metrics for Evaluating Customer Retention Efforts
The final step is to measure and evaluate customer retention efforts in order to refine the strategy and there are many metrics to keep an eye on for that purpose. They may include:
- Customer Retention Rate (CRR): The percentage of customers who remain loyal and continue to purchase from a company over time.
- Customer Lifetime Value (CLV): An estimate of the total amount of money a customer will spend with a business throughout their relationship.
- Churn rate: The percentage of customers leaving the business.
- Net Promoter Score (NPS): This marketing metric measures the likelihood of customers recommending a business.
- Customer satisfaction (CSAT): A measurement of how satisfied customers are overall.
- Repeat purchase rate (RPR): The percentage of customers that make another purchase within a given period.
- Time between purchase: The average time taken for a customer to make an additional purchase.
- Customer effort score (CES): How much effort a customer states was required in order to make a purchase.
As well as the marketing metrics above, ongoing customer feedback surveys and other forms of research can be analysed in order to check how the overall sentiment is changing over time.
In Summary
Targeting the right customers in the right way is the foundation of any successful marketing campaign, which is why segmentation is the place to start. In terms of retention, it can be used to help tailor loyalty programs and rewards in order to boost response. Combined with predictive analytics, it can help to determine when customers are likely to leave so that tried and tested steps to prevent that are implemented.
Providing the highest quality service combined with valuable content is the way to create a great first impression, paving the way for future loyalty. Surprising customers with variable rewards is another powerful method, and creating brand advocates provides a natural form of lead generation. Advocacy can be as simple as requesting client testimonials or as involved as influencer marketing.
Finally, consistently monitoring the marketing metrics discussed above is critical for continuous improvement.
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