A new customer walks into your store. She is very complimentary about the appearance and the products. She browses for a while, selects a few items, and makes – by your standards – a nice, average purchase.
Then she leaves. Now, will you ever see that customer again?
With only slight modifications, this same scenario could be supplemented for a visitor to your exhibition display or your online store.
In this competitive landscape, customer retention is becoming more and more important. Fortunately, there is a marketing discipline that is gaining traction to help you keep those customers coming back and create loyalty. It is known as retention marketing.
What is Retention Marketing and How is it Different?
Traditional marketing (or as it is beginning to be known, acquisition marketing) focuses on bringing new customers to your business. This includes ad buys, targeted direct marketing, coupons, sales, etc. Unfortunately, traditional ads are more expensive and less effective than they have ever been. In addition, social media, which used to be very cost effective, is becoming much less so. In fact, prices have increased significantly over the last few years. And to make a real impact, you need to pony up for social ads or promoted posts.
Retention marketing focuses on your existing customer base. The belief is that, by keeping your existing consumers happy, you can ensure repeat visits and increase the profitability of each purchase. This practice revolves around the activities you use to increase the likelihood of those customers returning to purchase again.
Retention marketing will never completely replace acquisition marketing efforts. The two disciplines need to be used in tandem. Yet, retention marketing is arguably the more important of the two. Here are several compelling reasons.
It Is More Cost Effective to Retain Current Customers Than to Acquire New Ones.
According to Harvard Business Review, it is 5-25 times more expensive to acquire a new customer than to retain an existing one. In addition, it is 16 times more expensive to bring a new customer to the same level of profitability as a current one.
There’s also the 80/20 rule, which is known as the Pareto Principle (named after an Italian economist, Vilfredo Pareto). In 1906, Pareto found that 80 percent of the land in Italy was owned by 20 percent of the population. Since this discovery, it has been revealed that this 80/20 distribution occurs with extreme frequency.
In the case of your business, it means that 20 percent of your customers represent 80 percent of your sales. This is why it is essential to maintain existing customers and keep those relationships in good shape. It is much more difficult to bring in new customers and raise them to the level of your current ones, than it is to nurture your current relationships.
Satisfied Customers Are More Likely to Buy.
Because these customers have already had a positive experience with your brand, they are much more likely to make a return purchase. Also, you will find that it doesn’t take as much effort to convince someone to return as it does to convince someone to stop by for the first time. This is because you do not need to attract and educate them about your products and services.
Another benefit: customers that are familiar with your brand are more willing to consider upselling and cross-selling efforts. On the flip side, these loyal customers also tend to ignore competitors’ sales efforts with more frequency.
Existing Customers Spend More Than New Customers.
Depending on which report you use, returning clients spend somewhere between 33-67 percent more than new ones. In addition, these clients tend to be less price sensitive because they are already aware of the value of your products or services.
In addition, customers that are happy with your products and services tend to tell others about their experience, which is increasingly essential. A 2016 Nielsen study shows that 80 percent of people seek personal recommendations when making a purchase or choosing a service.
Essentially, you can make customer advocacy a significant part of your marketing plan. In fact, since word of mouth is often viewed as impartial and unbiased, it could even be your most effective marketing campaign.
One Industry That’s Using Retention Marketing Well – and One That Isn’t (Fun Fact: It’s the Same Industry)
Healthcare payers (insurers) have successfully used retention marketing for several years. Payers recognized early on that retaining their current customers was essential to their success.
Think about the marketing campaigns of most insurers. They present a unified vision that speaks to the needs of their current subscribers. They also seek to distinguish themselves from their competitors, not in an effort to entice new consumers, but to persuade current customers from fleeing.
In this day and age of rising premiums, the focus on customer retention remains extremely important. The message coming from most payers is that these consistent increases in cost are the other guy’s fault and the deals are even worse across the street.
Conversely, healthcare providers (hospitals, primary care physicians, urgent care clinics, etc.) have historically viewed patient retention as unimportant. After all, providers were delivering an essential service that would always be in demand.
What most providers didn’t foresee was the current healthcare crisis, where costs are skyrocketing and competition between providers is at a fever pitch. This has forced providers to focus on prevention, making customer outreach essential.
In addition, these institutions also could not foresee the rise of always-on communication and social media, which has changed consumer habits forever. Patients no longer see themselves as being at the mercy of the provider. They now view themselves as consumers with a choice in where and how they seek care. Institutions that once overlooked consumer outreach are now struggling to play catch-up.
Providers are trying to learn lessons from payers about nurturing relationships and retaining patients (customers) by creating brand experiences that establish a true connection. In a few years it will be obvious which providers were able to successfully make the shift. They will be the ones still in business.
So, How Do I Start My Retention Marketing Plan?
Creating a full calendar of events is a quintessential customer retention tactic. A jam-packed event calendar signals that you are thinking about the needs of your customers and that you have a plan to ensure your longevity. This nails two important aspects of building loyalty and trust.
Here’s an example from a healthcare provider that is doing it right: Cleveland Clinic. This institution is nationally recognized in part because they have become an important part of their local community (that’s Cleveland, in case there was any doubt). One of the things they do so well is host a huge number of events across the city. The Cleveland Clinic calendar is always full. It includes yoga classes, nutrition courses, sports health sessions at games, and much more.
How could you use events in your business? What classes and workshops could you offer to keep your customer base involved? How could you make yourself an indispensable source of information for your client base?
Promotions are a great to keep your customers actively engaged with your brand. However, run-of-the-mill coupons or sales are not enough anymore. These promotions need to be authentic, targeted rewards for your consumers, such as loyalty programs, specially tailored discounts, etc. The data gathered to distribute these promos could also be used to send personalized communications: gifts cards on birthdays, specialized holiday greetings, etc.
A clever example can be found with underwear supplier MeUndies and its referral program. For every friend referred to MeUndies, you get $20, and they get 20 percent off their first purchase. MeUndies also included a gamification element to help ensure sales. If this referred friend places some merchandise in the cart and then gets cold feet, MeUndies has incorporated a “nudge” button that lets you send an email reminder about the awaiting purchase. Current customers are helping to alleviate stalled sales in an engaging way.
Referral systems are known to help customer retention. Remember the Pareto Principle (the 80/20 rule)? Since, 80 percent of profits come from 20 percent of your customers – it makes sense to identify that 20 percent and reward them for sticking around. As evidenced by the MeUndies example, the program does not need to be complicated – in fact, it absolutely should not be. Whether you are offering a discount for client referrals or a free drink/sandwich/tchotchke with the purchase of every ten, make sure your customers can earn their reward quickly and painlessly.
The easier it is for your customers to engage in your promotions, the more likely you are to retain their business. Such is the takeaway from the MeUndies program. Providing a worthwhile, clear incentive and gamification element kept people invested and made them advocates for the product.
Eliminate Pain Points
The best customer retention strategies have thoroughly reviewed the customer experience and have identified – and eliminated – pain points, such as products that are only available online or long lines at checkout. In fact, your checkout counter should be the most approachable and easily accessible area of the store. The last thing you want is people selecting a product, wanting to buy it, then giving up because the checkout process is such a pain.
Starbucks recently came up with an innovative solution. Within the Starbucks app is a feature called Mobile Order & Pay. Thanks to this feature, customers can place an order for a cup of coffee (or seven) well before they ever step foot in a shop. Once ordered (and paid for), they simply have to walk inside and pick up their drink(s).
You may not have the ability for this level of accessibility, but how could you make your products or services as easily available as possible for your consumers? What can you provide to you customers to empower their purchase decisions?
Retention marketing needs to be an essential part of your marketing plan. If you need any assistance getting started or help setting up events, The Trade Group is here. Give us a call at 800-343-2005.