First Step In Customer Preference Marketing

In this age of omnichannel consumption and an always-on digital society, the consumer—not the company – decides the how, why and what they shop.  What are the barriers to implementing this approach?  How does the marketer begin? Read on.

Brand reluctance to "give up control"
Handing over the reigns to the customer to decide what promotion, how often and why they should buy turns traditional marketing on its head. Marketing ‘s raison d’etre in the previous twenty years was to create, control and dictate communication to customers. For many companies not only are systems not established to invert the relationship, but this approach is just too radical.  Many bristle at the idea of asking customers, what does our brand mean to you? Would you rather we promote shoes or sweaters this next quarter? How often would you like to receive our catalog/email discounts/event notifications? It is antithetical to how marketers have persuaded up until now. 

Customer data logistics.
How do we collect this data? Where the heck do we put it? How do we organize it? How will we act on it? These are the questions C[IQ] often hears from companies. We understand how overwhelming it can be – both technically and strategically.  In general, start small. 

a.    Request only a one category preference from customers. For instance, how often they want to receive email; or, ask just the category of interest (i.e., politics, business, technology, arts).

Example Marketing Stream to Test

b.    Keep it low-tech. Add a form to the customer service section of your webpage; Append only one field to your existing customer database (weekly, monthly, quarterly, annually);

c.    Develop and test with only one segment. Plan marketing activities or touchpoints with only one group (new customers, Moms, basketball fans) with attainable outreach strategy (welcome email, product review request, next season’s new release email, loyalty program introduction). Track and measure its effectiveness.

d.    Analyze and iterate based on results. What internal process can be tweaked? What marketing message? Can the program be applied to other audiences? What technology or expertise is necessary to expand?

This step-wise approach:

  • Can reveal internal needs, customer preferences, and messaging shortcomings
  •  Is less threatening or intimidating to established marketing programs
  • Offers directional data for future planning of anticipated response rates, costs, and business requirements
  • Minimizes the risk of sunken costs since the effort can be deserted or built upon depending on results

Marketers hear “Test, test, test!” frequently; step-wise planning operationalizes the maxim…and let’s you test customer preferences. 

 

The Tension with Retention

We think it’s well settled that customer retention must be a cornerstone of any business strategy.  And yet, we continue to hear occasional complaints from CFOs and COOs that spending on retention marketing doesn’t yield the results claimed.  Thinking about those complaints, we decided to investigate.  Becoming desperate to find examples of retention marketing programs not working, we searched on “retention marketing failure” or “case study customer retention failed.”  No case studies or reports surfaced.  What did emerge where six factors that will often impair or sabotage customer retention programs (the details can be found here and here):

  • Lack of overall strategy (too many initiatives are developed ad-hoc or implemented organically);
  • Focusing on price, not service, or customer experience; 
  • Focusing on retaining all customers, not the right customers (identification & segmentation);
  • Lack of parity in investment/testing between acquisition and retention programs;
  • Inconsistent execution across business units and channels; and 
  • Prolonged or misguided investment in database development.

We think that last point is what gives “CRM” a bad rap.  CRM is not a technology or a database.  CRM is a business strategy to facilitate intelligent, targeted retention marketing efforts.  As an Editor once quipped, “Just because you have Microsoft Word, doesn’t mean you can write.” 

Which is where we can help (with customer database strategy, not your composition skills ;-) At the risk of this sounding like a pitch, C[IQ] ensures marketing databases can deliver and administer the customer intelligence required to drive your retention marketing efforts, and develop omni-channel retention initiatives that measurably effect the bottom-line. 

As a side note, our CTO has threatened a bit of a rant about that bad rap on CRM; not because he is a homer for CRM (believe us, not at all), but because he has a thing about intellectual honesty, and thinks its time to "out" what he sees as the real cause for the bad rap.   

The Numbers Are Telling

The statics are interesting from sources such as Econsultancy and Pitney Bowes:

  • Attracting a new customer costs five times as much as keeping an existing one
  • Globally, the average value of a lost customer is $243.
  • 71% of consumers have ended their relationship with a company due to poor customer service. 
  • The probability of selling to an existing customer is 60 – 70%. The probability of selling to a new prospect is 5-20%.
  • A 2% increase in customer retention has the same effect as decreasing costs by 10%.
  • Depending on the industry, reducing your customer defection rate by 5 % can increase your profitability by 25% to 125%.

And there’s more, but you’re getting the point (including an argument of a 1,000% ROI from Morgan Ericsson).  There are notable successful case studies by brands such as REI, Fidelity, ATT Wireless, EBay and Fiat.  But those are historical, spanning the last ten years with the advent of ecommerce and social media. This message should be directed at the brands that have yet to develop a sophisticated retention marketing strategy, and/or those who are attempting to cobble together a home-grown solution with legacy systems born from an I.T. promise to milk every penny out of the remaining amortization. 

The Retention Marketing Imperative

Deloitte recently reported that: 

The consensus is that customers are leaving at a greater rate overall and, unlike previous periods, those that are leaving span a greater spectrum of the customer base top to bottom in terms of annual spend…Leading retailers have already launched initiatives to understand and drive improved retention.” 

Couple that with RSR Research’s finding that the #1 issue for Retailers (over 50% of those surveyed) is that, “Customer retention has become more difficult and building customer loyalty is challenging.” 

This isn’t surprising given the sluggish economic recovery; slowly recovering marketing budget cuts; and the lingering sense of the “new normal” of price sensitivity.  Economic indicators notwithstanding, there is a greater market phenomenon at work.  Forrester calls it The Age of the Customer and others refer to it as the Consumer Revolution.  However you brand it, the bottom line is in today’s digital age, the consumer decides.

So, the tension with retention is a combination of economic uncertainty, the belief by CFOs and COOs that retention initatives fail ROI analysis (due mostly to the six issues we raised at the outset), versus considerable data suggesting otherwise, and consumers emboldened by a digital age and always-on society.

To that latter point, it is a rough crowd.  Today’s consumers are knowledgeable, fickle, vocal, savvy, hyper-connected, and information-saturated unlike any generation before.  Armed with ubiquitous and continuous access to information and public opinion, the consumer is in control.  Combine that with increasing competition, and companies are realizing that their biggest asset, the largest indicator of growth and profits, is their current customer base. 

By developing strategies that delight and encourage not just repeat purchase (i.e., retention) but brand loyalty and even advocacy, companies can ensure this year’s performance and build a cohort of loyal customers whose engagement ensures the next three years of profits.  And in a sentence that’s what we’re helping our clients do, every day.

Maxims of Retention Marketing

We were speaking with a Client's chief executive today, an individual who we are only just getting to know, but someone who is well seasoned and whip smart.  We're a month into a strategic engagement to help them with what could be a pivotal decision point for the Brand, and this executive was jumping in to get to know us.  In the course of our chat, we were informed that (and we're paraphrasing here with some editorial liberty, but this is what we heard in essence):

Retention marketing is a broad term that means so many things, I'm not sure it means anything at all.

Well, you know what they say, "the client is always, right," right?  That's a tough one, because in many instances we're retained to help provide insight as domain experts in our field, and if it runs afoul of what the Client believes, then at best we can hope to help them on a journey of self-discovery.  So, of course we didn't dare take exception. 

However one thing stuck with us.  This executive chided that in speaking with many colleagues and friends on Boards of, and running some of the largest consumer brands on the planet that they almost uninamously agree that if they had to do it all over again, they would rather spend money they invested in retention and loyalty programs elsewhere because the programs did nothing for their bottom line by serving customers already loyal who didn't need a discount to continue buying.

Well, as you can imagine there is so much wrapped up in that comment its hard to know where to begin.  But that did get us thinking, and we decided to push this out to our readers, just in case you have someone on your own executive team who believes all this relationship and retention marketing stuff is "a bunch of hooey."

Next week we're sending one of our top analysts on a paper chase to track down the empirical data on whether, in fact, retention marketing is failing to positively affect bottom lines of the largest brands, and we promise to report back, whether buoyed or sunk by the results.  For now, we're going to venture out on the proverbial limb by betting they do, and offer 10 maxims of Retention Marketing:

  1. It is less expensive to retain an existing customer than to acquire a new one.
  2. The general definition of retention marketing is "marketing programs focused on increasing customer engagement, creating brand affinity, and fostering loyalty to a brand, company or product."
  3. In the digital Age, the consumer decides.
  4. The social web has forever redefined how brands relate to their customers certainly during acquisition, but more so in retention.
  5. Know ZMOT.
  6. Be SMART about messaging.
  7. Retention Marketing does not simply mean loyalty.
  8. Loyalty is different from affinity, but both are types of "relationships" in the world of relationship marketing/management.
  9. To manage relationships you must be able to measure retention.
  10. In the digital age, every company needs to be Facebook.

Now, we'll undertake to say more about each of these maxims in the ensuing weeks aside from other planned content we're brewing for you. 

For now, we stand by our position: pay attention to retention; its not meaningless marketing hype.  If you're concerned about cutting your marketing costs, spend your dollars on keeping your existing customers and let them help you acquire new ones.