Solid Customer Retention Strategies

In the absence of a solid customer retention strategy, most marketers are forced to spend more and more money chasing after a shrinking pool of new customers.

A few years back, Seth Godin wrote a book entitled Permission Marketing: Turning Strangers Into Friends and Friends Into Customers. The premise of this book is simple: most advertisers spend the largest percentage of their advertising budget interrupting prospective customers with unwanted messages, rather than taking the time and making the effort to develop a constructive dialogue with current customers. His theory is that if marketers spent more time, energy and money building relationships with their current customers it would create greater lifetime value, more revenue and increased profits for their businesses.

Online marketers adopted these principals early on. Amazon, Apple, Overstock, Netflix and others quickly realized that they could gain a competitive advantage over their more established competitors by using technology and information to build stronger relationships with their customers.

In the last year, we’ve seen many offline marketers successfully shift their focus to customer retention. One notable example is Best Buy’s “customer centricity” initiative; where they identified five customer segments they believed represent the most significant growth opportunities. They then modified their store sets to appeal to one of these dominant customer segments, and launched a training program to teach their employees to focus on specific customer profiles as opposed to product orientation. The result was a 7% increase in sales compared to stores that were not involved in the initiative.

Given the research and new tools available, it’s surprising to see many marketers on a local and regional basis still doing business the old fashioned way. In the old days, if you wanted to increase sales for a weekend, you had a radio remote. If you needed to move product off the floor, you filled the newspapers and television with discounts and promotions. If you ran out of other ideas, you blew up a giant purple gorilla and erected it on the sidewalk in front of your store.

All of these tactics are based on the idea that you can build your business by screaming louder than your competitors at the same pool of customers. While to some extent all of these tactics work (in the absence of a good strategy - the execution of any tactic is likely to generate marginal results) simply spending more money attempting to get new customers is a recipe for disaster. Over time, all customers get sick of the screaming and tune everyone out.

Which is why today’s smart marketers have learned to focus on relationships. Most companies realize 70% or more of their revenue from current customers. It costs eight to fourteen times more to get a new customer than to keep an existing one. Current customers are the best source of referrals and cross-sell opportunities. So why spend most of your advertising budget trying to acquire increasingly elusive new customers?

If AT&T had asked themselves that question in 1993 maybe they’d still be an industry leader today. Ditto, TWA, TCI and ZCMI. Bottom-line, if you don’t focus your energy and budget on customer retention today, you’ll be spending your money re-acquiring less loyal customers at an 800% premium tomorrow.

Here are a few questions every smart marketer should be able to answer:

1. Do you know who your most valuable customers are?
2. Do you know how your most valuable customers and your least valuable customers differ? Do you know what they have in common?
3. Do you know what percentage of revenue and profits your most valuable customers contribute to your business? How about your least valuable customers?
4. Do you know what percentage of your revenue and profits “truly” new customers generate?
5. Do you have a strategy in place to build and maintain relationships with your most valuable customers?
6. Do you have a strategy to move your least valuable or lesser valuable customers into a more valued status?
7. Are you spending an adequate amount of your marketing budget on customer retention?

Marketing success is no longer defined as being the biggest, the loudest, or spending the most money. Today it’s all about creating profitable relationships, and long-term success. A solid customer retention strategy isn’t just the best way to achieve that goal – it’s the only way. You can find out more at Redirect Relationship Marketing.

Why online advertising needs to be a part of your overall marketing mix

Online advertising is becoming an important part of the overall media mix. Last year, advertisers spent more than $10 billion on Internet advertising. That’s more than they spent on local radio, outdoor, or national newspapers. This year, Internet advertising expenditures are expected to increase by 15% –- a growth rate three times higher than any other advertising medium. In fact, many traditional advertising media like newspaper and print are experiencing a decrease in spending.

This increase can be attributed to several factors:

• Maturity of the medium – The Internet has finally evolved into an advertising medium that makes sense for a majority of advertisers.
• Accessibility – Companies like Google, Overture and ValueClick have made advertising on the Internet an easier alternative.
• Killer Apps – Companies like Utah’s Omniture and Salesforce have made information gathered from web marketing campaigns easier to track and use for remarketing efforts.

The more important implication, though, is the impact of this shift on small and medium sized businesses in local and regional markets. Internet advertising expenditures have historically been driven by online marketers like Amazon and Ebay and by Fortune 2000 companies with large and sophisticated marketing programs. The marked increases in the last few years would indicate the entry of new forces in the segment. We can assume that more small and medium sized businesses are dedicating a larger percentage of their budget to Internet advertising.

All of this information adds up to one important fact: If your business hasn’t already incorporated Internet advertising into its overall marketing mix, you’re likely losing prospective and existing customers to your competition. It’s not too late to rework your plan for 2007 to ensure that you have the greatest competitive edge, First you need to evaluate what your online objectives are. Depending on what kind of business you’re in your online objectives might be drastically different. Generally speaking online marketing objectives can fall into three fairly broad categories:

• Generating leads –- This applies to your company if you sell primarily offline products or services, or if the products and services you sell would fall into the category of a considered purchase.
• Conducting online commerce –- This applies to your company if you’re already selling products online, or if your products are easily transferable to an online environment.
• Supporting customers and prospective customers – This applies to your company if you can provide customers and prospective customers with information about your product and services online in an easy and efficient manner. As an added benefit, if your online efforts are effective they will also support and enhance your brand building efforts.

Once you’ve determined your objectives, you need to develop strategies and decide whether you can implement these strategies internally or if you need external assistance. The reach of online advertising today is vast, from online ads and banners to email newsletters and blogs to paid search and search engine optimization. To a large extent your strategies and tactics will be dictated by your budget, the size and experience of your in-house marketing department, and your objectives. But keep in mind that as with most marketing activities, you’ll be much better off by executing one or two online initiatives effectively and with enthusiasm.

So as you’re reviewing your plan for the upcoming year, see what percentage your budget is comprised of online (it should be somewhere between 10 and 25 percent or even higher if most of your business is conducted online), and then pick some new online initiatives to start building your business and beating your competition. Now is the time to add a dynamic and effective Internet advertising plan to your overall marketing mix. You can find out more at Redirect Relationship Marketing.