Customer Retention

“Up to 80% of defecting customers describe themselves as ‘satisfied’ or ‘very satisfied’ just before they leave” – Business Week, 2008

How can you make absolutely certain that your customers buy from you again and again?

Let’s explore the options:

In my earlier days of face-to-face sales, one principle stuck well in my mind.

“You can only sell once. The second time they will buy on results”

In Direct Marketing, that first sale is of course the front-end acquisition.

By the time your customer has experienced your product and Customer Experience Management (CEM) the first time, they will have a definite opinion about your company which will effect future sales.

Marketers know well the principle that it usually costs more to get a new customer than it does to keep an old customer.

In fact, many companies see the acquisition as a breakeven or loss-leader, with the profits being generated on the back-end retention.

As such, all marketing efforts should work towards helping you build your in-house customer database.

Long Tail Marketing

Today?s customers are coming ever closer to demanding a fully personalised, customised experience…

…Choosing the products they want, where and when they will purchase, and how they want to communicate with the businesses they buy from.

This means you need to provide flexible product options, communicate in an increasingly personalised way, and identify the sweetspots of profitability in your market to cut marketing spend waste, maximise ROI, and remain competitive.

The purpose of business is to make mountains of profit by fulfilling customers nit-picky wants.

There is no mass market or general public, there are only individuals, who want options…

Most brand advertising commits to a ‘spray and prey’ tactic, or ‘advertising roulette’. They’ll spin the wheel and hope for the best.

From this perspective of your customer as the centre of your profitability, we can appreciate the broad mistakes businesses still make with their marketing.

Customer Experience Management

CRM (customer relationship management) sticks out as a sore thumb to many companies who invested heavily and found little or no positive ROI. The goal, however, was noble…

A 360 view of the customer to move towards 1:1 Marketing. I.e. Having a personalised relationship with each and every customer.

CRM has been refined in concept as well as in technology, and is more and more becoming possible.

The essence is captured in the modern phrase of ?Customer Experience Management?.

The goal here is to give the customer an experience of your product and service that bonds them forever to total brand loyalty.

  • Identify needs
  • Build relationships based on respect and trust
  • Communicate with relevant messages
  • Offer appropriate promotions

To know which customer profiles are best to target and develop niche product flexibility for, you must know all possible customer segments within your market sector… and the current lifetime values of your existing customer segments… So that you invest in the most profitable areas for maximum ROI.

So let?s look at…

Lifetime Value

The goal of Retention Marketing is optimal Customer Lifetime Value (CLTV).

In essence, LTV is the customers total net profit over the customers lifetime of purchases.

There is no single best way to calculate LTV. The calculations used will depend on the nature of the campaign, the business, and the corporate strategy.

Metrics for LTV can include:

Recency, Frequency, Monetary value of purchases, amount of up-sell, returns, fulfillment costs, ancillary purchases, life-cycle (how long customers are likely to purchase products in your category), purchasing lifetime, purchase renewal date, etc.

Purchase cycle: the time span between purchases (one car every 5 years)

Life cycle: the frequency of purchase per customer lifetime (5 cars over 45 years or 9 car purchases)

Average transaction value (average purchase size per customer)

Retention rate

Cost of acquisition
Cost of retention
Costs per sale – direct and indirect

Typical LTV calculations:

First, get the Net Present Value (NPV) (or profit per transaction) by subtracting costs from revenue per transaction.

E.g. Product is bought for 10 and costs 5 to fulfill. NPV = 5.

Then calculate ?Annual NPV? by multiplying NPV by transactions in one year.

E.g. NPV = 5 and customer buys 6 times in a year, so ANPV = 6 x 5 = 30

And then to calculate the LTV you multiply Annual NPV by expected years of customer lifetime (Purchase life expectancy or lifecycle).

E.g. Customer buys for 5 years on average, and the ANPV is 30 so 5 x 30 = 150 is the Lifetime Value of that customer profile.

Net present value of each customers average transaction times the number of transactions per year multiplied by the number of years that purchases are likely to be made.

In other words:

Average customer spend X purchase frequency X total purchases = Lifetime value

Stratify Your File by Customer Segment

Categorize customers according to like purchasing patterns and cycle, identified needs, and so on.

Segment your file until you have identified all key purchase influences that are worthy of direct attention, based on the inherent logic of the market, your market research… and the lifetime value calculations that highlight the sweetspots in your customer profile segments.

Don’t just segment for the sake of it. Segment in a way that directly relates to your businesses circumstances, needs, and realities. Not according to a standard list of variables.

Create segments that fit the way you will continue to do business.

With detailed customer profile segments, you can develop ‘individual’ messages that appeal to many people, and send personalised promotions – i.e. promotions based on their personal history.

Brand Equity

The sum of the customers opinion can be called Brand Equity.

Imagine if your customers had such passion, obsession, and enthusiasm for your product and business. Obsessed about being your customers. Like Apple has hundreds of customers line up outside their stores when they release new products.

Now that’s brand equity!

To focus on the real concerns and needs of the individual customer elevates a companies brand equity by securing loyalty in its customer base.

Al Ries and Jack Trout, in their book, Positioning, identify that mass advertising is good for helping to maintain brand awareness, but not for initially developing the brand equity or loyalty.

Building a brand depends on good PR (public relations, press coverage), and direct response marketing through 1:1 marketing as close as is possible.

And general advertising helps with brand maintenance, but only so far as the customer remains the most important thing to the company. And not just in lip service. But in actual actions to constantly re-segment the customers and provide for their exact needs as closely as possible.

And brand maintenance does not ‘big up’ the company per se. It elevates the customer him or her self as the most important part of the company / customer equation.

This also helps to eliminate ‘advertising waste’ – i.e. mass advertising which reaches many consumers that are not prospects for your product, and so is not an efficient way of spending your advertising budget.

Mass media should be used as reinforcement for your lifetime marketing efforts – those which taget customers in the mostpersonal, individual way possible. Public visibliyt wil keep you r brand fresh in the minds of customers and assure prospects that your brand is alive andd strong.

The goal of customer retention is to retain customers who have a high LTV and to remove customers who show little profitability.

Decision Process

Apparently (I have no specific references or personally validated metrics on this), “Years of in-depth research have been conducted to determine the decision process associated with consumers choices of specific products and brands. ”

Market research reveals that consumers go through a five-step process when making involved decisions.

  1. Recognition of problem or need
  2. Image and fact matching
  3. Trial purchase
  4. Post purchase evaluation
  5. Assignment of loyalty

Your retention programs must focus on maintaining brand equity.

Retention Programs

Rewarding customers for their business and loyalty is one of the best ways to retain them. Loyalty programs and rewards are one of the most important parts to retention marketing.

Ways to reward customers that build equity in their brands and make it costly for customers to switch to a competitor.

Retention also involves brand maintenance? – i.e. keeping your brand at the forefront of customers minds.

That can be achieved through mass advertising, PR, social media, and email communications. Both promotional/branded, and also personalised with minimal promotion/branding.

By including information about past purchases, you are reassuring your customers that their business with you did not go unnoticed and that you understand their individual needs.

Give customers a choice as to how they want to be rewarded, and continue to give them incentives to earn more rewards with your business by offering new rewards on a regular basis.

To keep customers loyal for a lifetime, you need to seek ways to reward them that are relevant to their needs and provide a real value.

  • Product comparisons
  • Decision wizards
  • Reminder services
  • Discount vouchers

Ideas for Making the Client Disposed to Use the Firm Again

Notes from Managing the Professional Service Firm

Going the extra mile on the current engagement

  • Use new business budget on the current engagement
  • Use budget to improve turnaround time, service
  • Improve quality of presentation
  • More documentation, explanations, accessibility

Increasing the amount of client contact

  • Telephone and visit regularly
  • Schedule business meetings near mealtime
  • Invite to firm offices
  • Introduce one’s partners
  • Get firm leaders involved

Building the business relationship

  • Help client with contacts
  • Put on special seminars for clients staff
  • Volunteer to attend client’s internal meetings
  • Offer free day of counseling on nonproject matters
  • Send client useful articles
  • If possible, refer business to client

Building the personal relationship

  • Social activities
  • Remeber personal, family anniverseries
  • Obtain scarce tickets
  • Provide home telephone numbers
  • Offer use of firms facilities

Continue at the main Conversion page.

Posted by Gavriel

Providing digital marketing services to launch, scale and maximize your campaigns.