Strategy

The Best Offense is a Good Defense: Why Retention Matters

We posted a blog comment earlier this year raising the point that new customers always get the best deals and loyal customers (those who’ve actually been paying the bills for a company) have to fight to be noticed.  We think this theme bears repeating with a global economy showing no signs of recovery and head count reductions resulting from a systemic problem inside most companies today: they “talk the talk” about valuing their customers (retention), but are culturally geared to hunt for new ones (acquisition).

Need proof?  Examine new customer offers for wireless, cable, credit cards, new cars, etc. and then notice the fine print that existing customers are prohibited from taking advantage of the offers.   Still not convinced?  OK, examine your company’s marketing budget — how much is allocated to acquisition (advertising, promotions, sponsorship, etc.) and how much is allocated to retention (rewards, CRM-driven conversation, recognition, feedback)?  Chances are your company may not have any formal retention strategy, let alone allocated budget.  The reason is likely that some executive somewhere treats customers like his/her spouse — once you land them you don’t have to work on keeping the relationship vibrant.  Wrong!   Customers divorce brands every day when feeling neglected.

Depending on the studies (e.g. McKinsey & Co.) claiming that it costs 8X-10X more to acquire a new customer than retain an existing customer, you would think that a lousy economy would have companies scrutinizing their expensive (and often unmeasured) acquisition tactics.  What’s more, the smart companies would be re-allocating marketing funds to retention strategies that not only seek to keep existing customers, but turn them into brand promoters to woo their friends/colleagues (thus, creating a “virtual sales force” that is cheaper than the company’s own channels.)  Unfortunately, most brands are simply reducing their acquisition-heavy marketing budget by 20% and continuing to engage in the madness of acquisition first.

So why does this happen?  Because acquisition marketing is easy in that marketers don’t have to invest in a customer relationship.  A relationship means two-way communication, listening, empathizing, putting the other person’s interests ahead of your own, etc. and this sounds like too much work for most marketers, so it’s easier for them to simply accept “churn” (loss of customers) and spend 10X to replace them with customers who will experience the same apathy months later, and again exit the relationship.  In short — marketing insanity.

Given that every marketing dollar is precious, we suggest the following three priorities for 2009 and beyond:

(1) Engagement - make a cognitive decision to show your appreciation to customers and engage them in a dialog.  Be authentic, transparent, and learn how to listen.  Involve them in your product & channel decisions, give them a platform to provide feedback, make them feel important, and personalize the brand experience (via CRM data).  Do it now, before your competitors do.  

(2) Increase LTV - grow the lifetime value of the existing customer base via (i) increasing average order size, (ii) increasing purchase frequency, (iii) reducing churn/defection, and (iv) re-activating dormant accounts.

(3) Referral Sales – give your loyal customers reasons (and financial incentives) to promote your brand to their friends/colleagues to drive new sources of sales.  Make them hero’s and give them a platform to tell their story — you’ll be surprised how easily they’ll oblige.

Be sure to identify the key performance indicators (KPI’s) so that you can demonstrate the ROI to your skeptics.  As always, we’re here to help with the strategy, testing, and execution.

Think about it.

Tags: CRM, marketing budget allocation, retention