The Sexy Side of Retention Marketing

???????????????????????????????????????May 19, 2015 the AMA turned the mike over to Hillary Ashton of Manthan to explore the sexy side of retention marketing. As we know acquisition marketing gets all the glory and is certainly the sexier of the two aspects of marketing. However, the tides they are beginning to change, thanks in part due to our friend big data. The key point Ms. Ashton reminds us of is that retention marketing is much less costly than acquisition and can drive significant gains to the bottom line if executed with good planning and sufficient data.

She led off with a recap on the three key trends facing CMOs according to a survey conducted by Gartner. They include the need to drive profitable revenue; to deepen the connection with customers and how to address better equipped and more serious competition. Inability to manage these three areas is one of the key drivers to the shorter tenure CMOs face compared to their other C-Suite colleagues. She presented a basic equation that all marketing organizations must master if they are to succeed. Although it may vary somewhat by industry it looks like this:

(Number of Customers x Breadth of Relationship x Economic Value) – Expense

Number of customers is affected by both acquisition and retention. Breadth of relationship relates to the quantity of transactions and services a particular customer has with the company. Economic value stresses that not all actions taken by customers and companies are profitable (e.g. throwing good money at unprofitable customers). The expense side of the equation is a nod to the fact that we have many tools available to assist us in meeting our marketing goals and some of those are more costly than others.

Ms. Ashton quotes a study by Marketing Metrics that states the probability of converting a new customer is no more than 20% (often less). While the likelihood of deepening the relationship with an existing customer ranges from 60% – 70%. In short, you have a three times greater likelihood of deriving more revenue from an existing customer than you do relying on revenue from new customers. Research by Bain reports that customers tend to spend upwards of 67% more in months 30 – 36 of the relationship than they do in the first six months of their tenure with you.

The landscape is changing. As recently as 2013 acquisition marketing was king. It received the lion’s share of interest and budget. However, in 2014 and since according to Forrester the global shift has been toward using analytics to drive retention, primarily through deepening the relationship and identifying those customers likely to leave the fold or churn. With this information in hand marketers are increasing their efforts to retain profitable customers while minimizing their efforts and spend on those who are not profitable.

This is where it becomes vital to understand your customers, their preferences and behaviors, as well as their economic value to the firm. One of the illustrations Ms. Ashton used was that of a company with a base of 1 million customers. An average customer spends $3,000 with the company annually. If this company has a 20% annual churn rate (it loses 200,000 customers per year) that is $600 million in revenue walking out the door. If five percent of the customers likely to churn can be saved it translates into $30 million in revenue.

One of Manthan’s score approaches is to provide the understanding necessary to profile customers and help the marketers they work with craft strategy needed to exceed the customer’s needs. If you have the available resources this can be done internally. The profile below is for a hypothetical customer Jose and provides information gleaned from all available data sources. Having this information available allows marketers to decide what efforts to apply toward retaining the Jose’s in their database.

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Key takeaways include: make retention marketing a priority! To do this effectively we have to combine all available sources of data ranging from transactions (behavior and profitability), survey data (attitudes) as well as all things social media. Only when we have a 360 degree view of the customer can we effectively deepen the relationship we have with our customers. This also allows us to more effectively acquire new customers that will be with us long enough to become profitable. Let me make this last statement clear – it often takes an extended period of time before new customers provide value sufficient to outweigh their cost of acquisition. This is where retention efforts earn their stripes.

Greg Timpany directs the research efforts for Global Knowledge in Cary, North Carolina, and runs Anova Market Research. You can follow him on Twitter @DataDudeGreg.

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