How to Implement a Customer Retention Plan
[By Karen Geier]
The digital world has given us unprecedented control over our purchasing habits. You can, in a few minutes, find out what kinds of products suit a particular need and which ones have the best reviews, and then have a product shipped to you overnight. This control for customers comes at the expense of brands, however, and those that used to have a large core group of faithful consumers now find themselves with a problem: customer retention.
Retention is an unsexy part of marketing, but it’s critically vital for brand managers and marketers to understand. The cost of retaining a customer is almost always cheaper than the cost to acquire a new customer, and customers who feel cherished will tell others about their positive experiences, meaning it’s possible to pay once, benefit twice.
The Basics of Retention
If you’ve ever gotten an email from a company you used to purchase from with a “special offer because we miss you,” then you’ve experienced a retention program. There are many ways to create and implement a retention plan, but they all must include the basics:
- A way of determining the age or frequency of purchases for a customer. This is a very important metric you should be gathering to determine the lifetime value of a customer (an estimate of the total amount of money a customer will spend on your product in an average lifetime). For some products, like dish soap, a lifetime is a long time. For other products, like large-ticket items or items that fill a short-term need, like baby bottles, this will be a shorter period. If you’re not sure how to calculate this metric, you can pull receipts from a few frequent accounts in your point of sale or e-commerce accounts and average the customers together.
- Offers to test what wins back a customer. This will be determined primarily by what types of promotions have worked for you in the past. Sometimes the best offers are the types of offers that you use to acquire a new customer; make these incentives open to existing customers for a limited time. This has the advantage of showing good will toward customers who may have strayed and shows newly acquired customers you’re willing to continue to invest in the relationship.
- A way of tying offers and purchases together to determine success. It’s important to know at the point of sale whether a customer is being won back, or if he or she is a new customer. You can accomplish this by applying unique coupon codes or codes specific to the type of promotion being conducted (if you’re testing multiple offers, they will need to be discrete from one another).
How can you implement a retention plan if your company is small or you’re not sure how to get started?
Pull your existing customer data: Take a sample of 100 customers who have made purchases in the past year and look at the frequency of their purchases and the corresponding dollar values. This will tell you the average cart value as well as the average frequency of a customer.
Pull accounts that fall below the average threshold: Look at the accounts with lower-than-average purchase frequency and set this data aside.
Devise at least two offers to test: You don’t need to select anything too weird, wacky, or costly to implement this type of program. For clues, look to customer acquisition promotions that have performed well.
Send out promotions to segments of your customer data list: Make sure the messages focus on how much you want the recipient to come back and how your brand offering is unique and differs from your competitors. Send these campaigns simultaneously, and put a time limit on them.
Look at your analytics: If you have access, measure the average time visitors spend on your site versus before the campaign, look at your cart abandon rates compared to before the campaign, and look for those promo codes coming through. This will give you a more complete picture of the behaviour of returning customers that you can then leverage into another retention campaign.
Consider a more personal touch for customers you think you may have lost for good: It never hurts to try extra hard with former high-value clients. Try customizing a retention offer for these customers.
Retention is a powerful tool not enough companies use to help boost their bottom line. A customer who is already familiar with your brand – who didn’t have objections to your brand and simply strayed to a competitor – can still be won back for less than the cost to acquire and teach a new customer. With a little attention to detail and a carefully crafted retention plan, your brand could boost revenue and goodwill with existing customers.