Retention Marketing Primer, Part 1

Retention marketing, or getting customers who previously bought from you to purchase again, is a lot like being married. Unlike dating, existing relationships require work to keep them interesting and exciting.

You can better target marketing messages and more cost-effectively meet buyers’ expressed needs using their contact information and purchase history. Having purchased from the company in the past, existing customers are familiar with your firm’s brand and hopefully are predisposed to shop with you again.

Three Retention Marketing Goals

With increased transparency and expansion of social media, retention marketing is no longer just about getting more sales. It’s also about:

  • Keeping existing customers active and purchasing to increase sales while reducing attrition and churn
  • Supporting the buying decision by making customers feel good about their purchases; providing more information to help use the product; and aiding returns if the order doesn’t meet their needs
  • Providing support and an advocacy venue for customers to express their opinions and refer friends
  • Today, we’ll look at keeping existing customers active. In follow-up columns, we’ll cover supporting the buying decision and providing an advocacy venue.

    Five Challenges of Retention Marketing

    To provide ongoing communications that remain fresh, retention marketers must overcome five hurdles:

  • Make presentations seem fresh. Don’t continually reuse the same creative.
  • Keep products looking different. This is especially important when customers have seen them multiple times.
  • Prevent offer and promotion fatigue. Promotions often become less effective with each successive use, generating lower results.
  • Maintain the same number of annual promotions. It’s generally necessary to keep the same number of promotions each year to maintain the same sales level.
  • Overcome variability in customer quality. Shoppers may vary their purchasing levels, depending on how they were originally acquired. One red flag for retention marketers is customers who purchased for one of the following reasons:
  • Low price. Price-sensitive customers may only buy based on price, an issue in terms of both margins and profitability.
  • Free shipping and handling. Customers who were attracted with free shipping and handling offers may wait to buy until the offer is available again.
  • Gift purchase. Customers who bought the product as a gift may have no further interest in your company.
  • Competitive forces. From a customer’s perspective, how good is the competition’s offer? How strong is its advertising? Assess whether this challenge is worth meeting, cost-wise.
  • Low or special credit qualifier. This is an issue for higher priced items that are paid for over time.
  • Three Ways to Keep Customers Buying

    To keeping existing customers buying, there are three major marketing activity categories:

  • Sell to current customers. This includes selling more of the same product, related products, or an upgrade from a past product. To this end, a marketing calendar is important to ensure there’s an ongoing schedule of promotions to drive revenue. Use several different factors to determine each promotion’s success, including total revenues, costs, and buyers. When developing a promotional calendar, consider the following:
  • Current and previous year’s promotions, including offer, product, creative, timing, and results.
  • Acquisition timing and life-cycle sequencing. When are new customers acquired? How does this affect the marketing calendar? Are special offers targeted at high buyers, inactive customers, or other segments?
  • Fresh, updated product offerings.
  • New creative approaches or offers to replace fatigued ones.
  • Continued communications beyond e-mail and catalogs, which get recipients to buy more. The aim is to foster the relationship with customers by providing more information that enhances their product experience and gives them reasons to revisit your store, Web site, or catalog.
  • Extend revenue opportunities. These marketing initiatives focus on leveraging the customer file’s value to generate revenues from non-sales related activities. Options include:
  • Coregistration for online e-mail registration, which may be done for a fee or reciprocal registrations
  • Package inserts, which are third-party ads placed in outgoing shipments for a fee, paid on a CPM (define) basis
  • List rental for e-mail or postal mailings
  • Referrals from current customers, which are a negative cost that reduces acquisition costs
  • Manage inventory. Ensure there’s a balanced stock of new and existing product. It’s important to continually refresh the product offering to keep it alluring while not maintaining inventory that doesn’t move. When assessing your offering’s long tail, consider customer demand. It may be necessary to change product presentation and pricing to liquidate excess inventory. But don’t run out of stock on hot items.
  • Retention Marketing Success Metrics

    Among the factors to measure to determine retention marketing success are:

  • Sales. Track dollars, units, and products as well as revenues per customer contacted.
  • Expenses. Monitor marketing cost dollars and cost per customer contacted.
  • Response rate. Calculate the percentage of customers who purchased relative to the number of customers contacted.
  • Churn rate. Track the percentage of customers who end their relationships with your company within a given time.
  • Lifetime value. Measure the combined effect of acquisition and retention strategies over time, taking into consideration the net present value.
  • It’s much less expensive to sell to existing customers than to find new ones. While it can be more challenging to keep the marketing and product mix fresh, it’s worth the effort. Repeat sales have better margins.

    Stay tuned. In parts two and three, I’ll cover the other two aspects of retention marketing: purchase decision support and customer advocacy.

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