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.