It’s not a sentence we hear very often: “The 20 per cent uplift from the brilliant direct mail cross-sell campaign is what landed them the CMO role.” But it should be, especially when it costs five times more to acquire a new customer than it does to retain one.
The old adage ‘Retention is cheaper than acquisition’ seems pretty uncontroversial and feels intuitively true. A bird in the hand and all that. But even if everyone agreed, as an industry we sure don’t act like it. The sentence at the start of this article is much more likely to read: “That big TV campaign landed them the top spot.” Acquisition gets all the attention, all the awards, all the budget, all the kudos and all the targets, and to some extent, this is understandable. Everyone is tasked with growth and the target is constantly on acquisition, so new customer growth naturally feels like the best place to focus. On a human level too, you can show your friends and family your new TV ad (and the award it won), but it’s harder to make cocktail party conversation about the outbound call campaign that reduced churn by 15 per cent – this lack of focus on retention is not efficient and is doing us all a disservice.
Whether you call them base management, customer loyalty and renewals or customer value management, retention teams have been working mostly out of the spotlight – however, this is changing. Over the past decade, we’ve seen incredible strides in companies advancing the sophistication of their retention strategy and execution – really clever stuff done on low budgets and limited resources. These strategies are worth understanding both because of the value they drive to business, but also because the ‘retention mindset’ can be applied to all other areas of marketing, sometimes with incredible results.
Joining us on this week's episode of the Inside Marketing podcast is Peter Tanham, co-founder of Nimble Metrics, to discuss how retention is the new acquisition.
Tailoring email campaigns
For example, these teams often spend a lot of time tailoring email campaigns on a per-segment basis. If I’m a telco and I know you have a Samsung, I shouldn’t email you about the new Apple Airpods. Simple concepts like this in retention have dramatic effect when applied to acquisition. We recently worked with a client to take their first-party segments and use them to build lookalike audiences on Search, Social and Display. These audiences let us talk about SUVs to those who looked most like existing SUV drivers, and hatchbacks to those who looked most like existing hatchback drivers. This is a dramatic change from segmenting the market based on how they engage with media – what they watch on TV, follow on Twitter or like on Facebook – to segmenting the market based on your internal segmentation and how they would engage with your brand.
The most important trend in this space is the emergence of lifetime value (LTV) as the guiding north star. It is the key metric companies should invest in defining, measuring and driving. Using LTV as a key goal will allow you to balance the trade-offs between investing limited resources in acquisition vs retention. Increasing the number of customers at your current LTV, or increasing the average LTV for all customers is a trade-off calculation that isn’t too complex for you to make when weighing up the allocation of 2020’s budget. Using LTV segments will also give you a better view and understanding of your current and prospective customers and allow you to compare the customer acquisition cost (CAC) of a new customer against their predicted LTV. If the LTV of a new customer is lower than the CAC, the business model is unsustainable
Beyond this, there is another hidden power in optimising for LTV that isn’t immediately obvious – a superpower that organisations with the highest LTVs in their industry are gifting their acquisition teams or agencies with and allowing them to outbid competitors on almost all media and still remain margin-positive, increasing long-term profitability for the company and reducing customer churn.
The old-fashioned way
To dominate the market, you can raise a ton of capital from a VC or a bank, like a tech unicorn, and use it to subsidise your acquisition activity. The other way, the old-fashioned way, is to work hard to increase your LTV, so that you can afford to pay a higher cost-per-acquisition than anyone else in the market because your machine can crank more value out of an acquisition than anyone else. In this way, short-term investment in retention strategies can (and should) be seen as long-term investment in your acquisition strategy. One of the most important investments any retention-minded team will make is in their first-party data – data that helps them measure, understand and manage their relationship with their customers.
Fundamentally, that’s what we’re talking about here – relationships. How you build them over time and how you balance short-term sales goals with the long-term need to nurture your customer relationships without abusing their time, attention and trust. This is the purview of every retention team. Every good retention manager spends half their time protecting the customer relationship by telling product teams “no” – “I know it’s three days until the end of the quarter and you’re behind on your target, but we’re not sending every customer a third email today to remind them that your product is for sale.” Using this language might fool some people into purchasing this time, but is could be at the risk of losing the customer’s trust.
When it comes to retention, trust is a vital factor that is often over-looked. It’s built through every touchpoint and interaction a customer has with the company, and although it can be slow to build, losing it can happen very quickly and easily.
Retention segmentation strategies
The tool retention teams use most to think about relationships at scale are segments. It is the most meaningfully useful way to interpret and act upon large amounts of first-party customer data. Here are three key retention segmentation strategies that I think will be most valuable to apply to acquisition teams:
Trust-building and consent: Long before GDPR was in place, retention teams were building relationships based on opt-in consent and giving customers control over the channels and frequency of contact.
Know them deeply: Obviously not on an individual basis, but at a segment level knowing why your customers buy from you, what motivates them and what barriers might get in their way is key to unlocking growth. Start thinking about the market in terms of your internal segments, rather than by what media they consume or what things they like on Facebook.
Focus on lifetime value: That's ultimately what we're all trying to build, an engine that creates the most amount of value for and from a customer over the lifetime of your relationship with them.
Over the last decade, this retention mindset has been a quiet revolution at the heart of many businesses. Over the next decade, any business that implements a smart data strategy to increase lifetime value and manage customer relationships at scale, with consent and trust at its core, will be unstoppable.
Peter Tanham is the co-founder of Nimble Metrics, an analytics and data consultancy which partners with Dentsu Aegis Network
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