Focus on your Diamonds (it’ll help your bottom line)

Why you need to make room in your marketing budget for retaining customers.

Focusing on acquisition is still the default setting for many companies, but this is quickly becoming an outdated methodology. For brands and retailers, part of the thrill of marketing should come from converting a semi-engaged customer into a loyal brand advocate. But why is retention as important as acquisition? Forrester research indicates that:

“Marketers obsess over acquisition. Even as the lines between marketing and customer experience blur, our survey respondents prioritize customer acquisition efforts over nurturing and deepening relationships with their most valuable and loyal customers.”

This is dumbfounding when by all indications, shifting the focus to customer retention leads to an increase in profits.

To put it simply: I’m advocating that your marketing team shift the focus to your diamonds — not your seagulls.

The diamonds are your audience segments that add value to your brand through advocacy, purchase frequency, basket-size, loyalty etc.

The seagulls are the ones who fly into your store, make a mess on your floor and fly off again — a la Groupon-style.

Here’s some research that sticks:

It costs 5x as much to attract a new customer than to retain an existing customer.

The probability of selling to an existing customer is 60%-70% — but the probability of selling to a new customer is 5%-20%.

Existing customers are twice as likely to try new products and spend 31% more when compared to new customers.

Increasing customer retention rates by 5% increases can increase a business’s profits by 25% to 90%.

You don’t get a more compelling business case for shifting more of the marketing budget towards retaining and nurturing existing customers than that. So why are marketers still holding back? Why are they killing the path to higher profits?

When we speak to clients, we realise that it’s all about the priorities. Shifting the focus and budget to retention is not easy, especially when:

• Acquisition programs are more visible, generate quicker results and when done well, can be felt throughout the entire organization
• Retention programs require longer-term strategic thinking, more time to prove their worth, and in some cases, an unfamiliar technology to guide and optimise the lifetime value of the customer.

This procrastination may also explain another interesting statistic:

While 76% of companies see CLV (Customer Lifetime Value) as an important concept of their organization, only 42% are able to measure it accurately.

How do you measure Customer Lifetime Value effectively?

Customer Lifetime Value (CLV) refers to the total amount of money a customer will spend with your organization throughout their relationship with your brand. This affects the way you allocate budgets for acquiring and servicing a customer and helps your business spend only what is needed without going over an acquisition budget and affecting profits.

You can measure this effectively in several ways, but the easiest way get a rough gauge of your CLV comes from this simple formula:

Average Transaction Value X Average # of Transactions in a Year X Average Customer Retention Period

Let’s break it down a little more:

Average Transaction Value refers to the average amount of money a customer spends at your business per receipt. This could range from a $5.00 coffee to $650 of clothes, shoes and bags.

Average # of Transactions in a year refers to the average total per receipt transaction that occurs over the course of a business year.

Average Customer Retention Period refers to how long a customer spends with your brand on average before they disengage from your brand.

What CLV tells us about marketing

Looking at that formula, you might have realised this:

A lot of what comes with estimating your total CLV is the faith that customers will continue spending with your brand.

It makes sense for a brand to also actively try to lengthen the amount of time a customer spends with the organization — you can be sure that a higher CLV will benefit your bottom line.

Experience Counts

I work at Riverview, where our team is pretty much obsessed with making the end customer experience engaging, seamless and targeted — almost as much as we are to making our client experience intuitive, intelligent and easy to navigate.

We help make understanding and growing customer lifetime value a piece of cake so budgets can be more rightfully distributed between acquisition and retention tactics.

How do we do this? I’m going to let you in on a secret: one of the easiest ways to shift the focus to retention is to invest in a loyalty and rewards program for your brand.