Customer Retention marketing is a tactically-driven
approach based on customer behavior. It's the core activity going on
behind the scenes in Relationship
Marketing, Loyalty Marketing, Database
Marketing, Permission Marketing, and so forth. Here’s the basic
philosophy of a retention-oriented marketer:
1. Past and Current customer behavior is
the best predictor of Future customer behavior. Think about it.
In general, it is more often true than not true, and when it comes to
action-oriented activities like making purchases and visiting web sites,
the concept really shines through.
We are talking about actual behavior here, not
implied behavior. Being a 35-year-old woman is not a behavior; it’s a
demographic characteristic. Take these two groups of potential buyers
who surf the ‘Net:
- People who are a perfect demographic match for
your site, but have never made a purchase online anywhere
- People who are outside the core demographics
for your site, but have purchased repeatedly online at many different web sites
If you sent a 20% off promotion to each group,
asking them to visit and make a first purchase, response would be higher from
the buyers (second bullet above) than the demographically targeted group (first
bullet above). This effect has been demonstrated for years with many types
of Direct Marketing. It works because actual behavior is better at
predicting future behavior than demographic characteristics are. You can
tell whether a customer is about to defect or not by watching their behavior;
once you can predict defection, you have a shot at retaining the customer by
2. Active customers are happy (retained) customers; and they like to
"win." They like to feel they are in control and smart about choices
they make, and they like to feel good about their behavior. Marketers take
advantage of this by offering promotions of various kinds to get consumers to
engage in a behavior and feel good about doing it.
These promotions range from discounts and
sweepstakes to loyalty programs and higher concept approaches such as thank-you
notes and birthday cards. Promotions encourage behavior. If you want
your customers to do something, you have to do something for them, and if it’s
something that makes them feel good (like they are winning the consumer game)
then they’re more likely to do it.
Retaining customers means keeping them active with you. If you don't,
they will slip away and eventually no longer be customers. Promotions
encourage this interaction of customers with your company, even if you are just
sending out a newsletter or birthday card.
The truth is, almost all customers will leave you eventually. The trick
is to keep them active and happy as long as possible, and to make
money doing it.
3. Retention Marketing is all
Action – Reaction – Feedback – Repeat.
Marketing is a conversation, as the ClueTrain
Manifesto and Permission Marketing
have pointed out. Marketing with customer data is a highly evolved and valuable
conversation, but it has to be back and forth between the marketer and the
customer, and you have to LISTEN to what the customer is saying to you.
For example, let's say you look at some average
customer behavior. You look at every customer who has made at least 2
purchases, and you calculate the number of days between the first and second
purchases. This number is called "latency" - the number of days
between two customer events. Perhaps you find it to be 30 days.
Now, look at your One-Time buyers. If a customer has not made a second
purchase by 30 days after the first purchase, the customer is not acting like an
"average" multi-purchase customer. The customer data is telling
you something is wrong, and you should react to it with a promotion. This
is an example of the data speaking for the customer; you have to learn how to
This site and the Drilling Down
book are all about how to discover, manage,
and listen to customer data. The data is speaking for the
customer, telling you by its very existence (or non-existence) there has been an
action (or non-action) waiting for a reaction.
4. Retention Marketing requires allocating marketing resources.
You have to realize some marketing activities and customers will generate higher
profits than others. You can keep your budget flat or shrink it while
increasing sales and profits if you continuously allocate more of the budget to
highly profitable activities and away from lower profit activities. This
doesn't mean you should "get rid" of some customers or treat
It means when you have a choice, as you
frequently do in marketing, instead of spending the same amount of money on
every customer, you spend more on some and less on others. It takes money
to make money. Unless you get a huge increase in your budget, where will
the money come from?
For example, let's say you have 1,000 customers, and you
have an annual budget of $1,000. You spend $1 on each customer each year,
and for that $1, you get back $1.10 in profits. That's an ROI
of 10%; you got back $1,100 for spending $1,000.
Now, what if you knew
spending $2 each year on a certain 50% of customers would bring back $8 in
profits. That's a 400% ROI. Where do you get the extra $1? You
take it away from the other 50% of customers. You spend the same $1,000
total and you make back 500 (half the customers) x $8 = $4,000.
If you always migrate and reallocate marketing dollars towards
higher ROI efforts, profits will grow even as the marketing budget stays flat.
You have to develop a way to allocate resources
to the most
profitable promotions, deliver them to the right customer at the right time, and not waste
time and money on unprofitable promotions and customers. This is accomplished by using the
data customers create through their interactions with you to build simple models or
rules to follow. These models are your listening system, like the
"30 day latency" model above. They allow
the data to speak to you about the customer.
This site and the Drilling Down book are
teaching you how to build and use these models yourself in 30 minutes
with an Excel spreadsheet. If you want to increase
sales while reducing the costs of marketing
to customers, you
have to get this book.