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.