Christian Hausammann of Snipp Interactive looks at how brands invest time and money in customer acquisition but neglect to invest in customer retention.
A significant amount of time and money is invested in customer acquisition, but brands often neglect to invest in customer retention.
All too often, there is a distinct lack of importance placed on specifically targeting and rewarding existing consumers, when in fact an increase of even 5% in customer retention can show a profit increase as high as 95%.
Marketers usually get the (incorrect) idea that customer retention is not worth the time or money because of one, or both, of two reasons: either no clear process was determined by the brand for retaining customers when a loyalty program was set up, or because past retention efforts were usually too small to be effective on a larger scale.
This leaves a ‘bad taste’ in the mouth of brands who come to believe that there is negligible ROI on customer retention – an incredibly false perception.
The truth is, brands can implement a successful retention strategy, if they put their minds to it.
There are four main steps which can help brands who seek to retain their consumers and see a positive effect on their profit margin:
- Have a clear concept of how you are going to retail to retain customers, based on profound data analytics.
- Create a persistent and performing retention program with the right creative concept.
- Have the right offers and incentives to retain people.
- Build in proper measurement systems and metrics that allow you to track the success of the retention initiative.
The best way to demonstrate how effective customer retention can be is with a real example.
A large department store brand with an impressive loyalty program of over 800,000 members created an offer that they would send twice a year to their members. Sent via standard mail, this offer included a voucher worth £10 with a purchase of £100. This was an expensive initiative for the retailer, and they did not see the response rate that they expected to get.
The brand’s marketing department developed a new retention concept, based around analysing existing data to determine the moments when consumer’s lost interest in the loyalty programme and stopped engaging with it.
This analysis found three clear patterns of when consumers fell out of love with the loyalty programme: at four months, six months, and eighteen months after the last transaction.
Based on these findings, the department store’s agency developed a communication plan that combined the right offers and incentives for each consumer segment which were sent out each month to those people identified as being on the verge of inactivity.
The result of this retention campaign was phenomenal. Over 50% of contacted members responded to the communication. The interesting finding was that only half the members actually redeemed the offers that were given to them, while the other half did not but still came back to shop. What’s more, the average purchase as a result of this retention was nearly triple the normal purchase amount.
This retention campaign has been running for years now and clearly demonstrates how investing inn a well run, well planned and well executed continuous program, focused on retention, pays off.
Data analytics will be able to precisely identify the timelines of activity and inactivity and usually several clusters of activity will be found. The frequency and interval of, or between, purchases can vary dramatically amongst customers and loyalty program members.
The 15/50 Rule
It is important not to forget the 15/50 rule of Customers to Business, in which the top spending 15% of consumers make up 50% of the business, while the bottom 50% of consumers make up 15% of the business (as explained in an excellent report, The Loyal Treatment: Maximizing Customer Value Through Engagement by Dennis Armbruster, July 2013).
Visualizing this purchase behaviour for these main segments makes identifying purchase patterns easier, especially when the data analytics may give results that contradict commonly held conceptions about a business’s consumers.
A strong creative concept and valuable offers and incentives are also necessary. Surprising consumers by recognizing them through creative promotions with great rewards has an extremely high value and ROI to brands. This may include digital rewards such as music downloads or Uber credits, that they can instantly access on their mobile devices, or offers tied to their loyalty program card for easy redemption in-store.
These types of personalized incentives add value to the lives of your consumers, creating an emotional connection to the brand and lasting loyalty.
Another consideration is to distinguish the most valuable consumers who deserve a more substantial reward from those who could be warmed up with an offer that is less personal but will jumpstart their path to loyalty.
Connecting with your consumers can take time, and it is important to develop a two-way line of communication to gather more data and continue adapting the creative messaging of the campaign and the incentives offered.
Finally, your analytics, KPIs and other issues related to reporting back on the results of your activities must be defined at the start of the project.
This should encompass both direct and indirect measurements: direct results stem from the redemption rates of offers and incentives initiated by the campaign, while indirect results are those consumers who returned to shop as a result of the retention program but who did not redeem an offer/incentive.
Utilizing data analytics, creative campaigns that incorporate relevant rewards and proper reporting, marketers will soon find that customer retention programs are worth the investment and deliver a loyal consumer base.
Christian Hausammann, Global Loyalty Director at Snipp Interactive, has over 15 years of experience in Dialogue Marketing, Loyalty Management, Store Cards and Giftcard Management. Before joining Snipp, he was Head of Customer & Loyalty Management at Swiss Post, managing large loyalty clients Leder & Schuh and Top Pharm.