|
Customer retention:
No matter what the industry is a
business cannot succeed without customers. It may seem
like common sense but as any business entrepreneur
knows, the task of retaining profitable customers is a
complicated one.
Global competition is
fierce. Prices are dropping. Companies must offer
better and better incentives to attract customers.
These same conditions have eroded customer loyalty as
well, leaving businesses to pay ever-increasing
acquisition costs for customers who just bide their time
until they find a better offer.
Given today's marketplace
demands, it is more important than ever for businesses
to reduce customer turnover. To do that, you need a way
to determine which of your customers are likely to leave
– and which ones you want to keep – so you can execute
marketing strategies to convince them to stay.
Tailored to your company's
individual needs, customer retention solutions from BSB
enable you to quickly gain an understanding of the
variables that influence customer “churn” – allowing you
to determine not only which customers are likely to
leave, but why. Marketing is a tactically-driven
approach based on customer behaviour. It's the core
activity going on behind the scenes. Here’s the basic
philosophy of retention-orientated marketing. Past and
current customer behaviour is the best predictor of
future customer behaviour. Think about it. Generally
it’s more often true than not true and when it comes to
pro-active orientated activities the concept really
shines through. We are talking about actual behaviour
here, not implied behaviour. Being a 35-year-old woman
is not behaviour, it’s a demographic characteristic.
Marketing with customer
data is a highly evolved and valuable conversation but
it has to go back and forth between you and the customer
and you have to LISTEN to what the customer is
saying to you.
For example, let's say you
look at some average customer behaviour. You look at
every customer who has made at least 2 purchases from
your business you then calculate the number of days
between the first and second purchases. This number is
called "frequency" - the number of days between two
customer events. Perhaps you find it to be 30 days.
Now look at your One-Time
buyers. If a customer has not made a second purchase by
30 days after the first purchase the customer is not
acting like an "average" multi-purchase customer. The
customer data is telling you something is wrong and you
should react to it with a promotion. This is an example
of the data speaking for the customer, you have to learn
how to listen.
Customer retention
requires allocating marketing resources. You have to
realise some marketing activities and some customers
will generate higher profits than others. You can keep
your budget flat or shrink it while increasing sales and
profits if you continuously allocate more of the budget
to highly profitable activities and away from lower
profit activities. This doesn't mean you should get rid
of some customers or treat them poorly.
It means when you have
a choice, as you frequently do in marketing, instead
of spending the same amount of money on every customer,
you spend more on some and less on others. It takes
money to make money. Unless you get a huge increase in
your budget, where will the money come from?
For example, let's say you
have 1,000 customers, and you have an annual budget of
£1,000. You spend £1 on each customer each year, and
for that £1, you get back £1.10 in profits. That's a
return investment of 10%. You got back £1,100 for
spending £1,000.
Now, what if you knew
spending £2 each year on 50% of the customers would
bring you back £8 in profits. That's a 400% return of
investment. Where do you get the extra £1? You take it
away from the other 50% of the customers. You spend the
same £1,000 and you make 500 customers x £8 = £4,000.
If you
always migrate and reallocate the marketing budget
towards higher return of investment efforts, profits
will grow even as the marketing budget stays flat. You
have to develop a way to allocate resources to the most
profitable promotions, deliver them to the right
customer at the right time and not waste time and money
on unprofitable promotions and customers. This is
accomplished by using the data customers create through
their interactions with you to build simple models or
rules to follow. These models are your listening
system, like the "30 day frequency" model
mentioned before. They allow the data to speak to you
about the customer. |
