A bird in the hand is worth two in the bush
Your existing customers are your most valuable. They have already declared that they like your products and your brand and by inspiring them to continue to shop, to shop more often, and to spend more, you can grow a loyal customer base with a high lifetime value.
According to research by Harvard Business Review, it is 5 – 25 times more costly to acquire a new customer than to retain an existing one, and that by increasing retention rates just 5%, profits soar an impressive 25 – 95%.
Loyal customers can also serve as your organic acquisition engine. When people have a great experience with your brand they tell their friends, family, and acquaintances. The happiest of customers will amplify their appreciation through ratings, reviews, and social posts.
Why brands don’t focus on customer retention
Given these factors, it’s clear that brands should focus a large portion of their marketing spend on customer retention. And yet, according to research by Sailthru, only 16% of companies put their primary marketing focus on customer retention, despite knowing it is more cost-effective than acquisition.
Why is this the case? The simple answer is that customer retention is harder than customer acquisition. Customer acquisition offers quick wins and more easily measured KPIs, according to a post by Adam Blair at Retail Touchpoints. By turning up the ad spend, marketers generally see immediate results, even if they’re costly.
In contrast, customer retention is an ongoing process that requires skillful execution, over time, across many touch points. Micro-segmentation, personalization across app, site, and email, meaningful product recommendations, and omni-channel campaigns are just a few of the techniques required to retain today’s consumers.
Why does it take so much work? Can’t brands just make great products that consumers loves? Unfortunately, that is no longer enough. Today’s digital landscape is full of noise and competition. According to a Walker study, by the year 2020 customer experience will overtake price and product as the key brand differentiator. Consumers increasingly care about the customer experience a brand offers them, and great customer experiences are simple, relevant, and personal.
But there’s more. Brenda Witcher, a principal analyst at Forrester was recently quoted in this Wall Street Journal article as saying that the vast majority of brands (90%) are trying to better retain customers. They are using proven customer retention techniques like retargeting emails and post-purchase recommendations. But despite these efforts, only a fraction of customers find the communications they receive from brands relevant.
According to Witcher there’s an elephant in the room: “the ugly truth is that most retailers haven’t done the unsexy work of understanding how to use the data.”
The ugly truth
Witcher is referring to customer data unification. Most marketers are using only the bits of customer data that are readily available to them. This is often limited to the data that exists in their email marketing tool or information from a few, easy-to-access sources. Most consumer brands struggle to break down data silos, resolve identities, and build complete, unified customer views that are connected to all their customer touch points. To learn more specifics on why this is the case, read: Why Traditional Approaches to Customer Data Unification Fail Consumer Marketers.
Without unified customer views, effective personalization is impossible. The result is that customers receive communications with little relevance to them, even from brands who are leaders in personalization. In example from the WSJ article above, an organization with a relatively good reputation for personalization nonetheless failed to recommend relevant products. One of their regular customers complained that she was recommended products from brands that she never buys.
What went wrong? The recommendations were not powered by complete, unified data about that individual. Perhaps she shops exclusively in-store. The organization should bring in point-of-sale data from their store, tie the data to the customer’s profile, and use all that information to power relevant product recommendations. Otherwise customers are left disappointed and the organization is no better off.
Customer data unification
All of the above requires a quick recap. First, brands should be focusing more on customer retention than acquisition, but they aren’t. The brands that try to improve retention through techniques like personalization, often get it wrong. This is because they lack a unified customer view and are failing to use the hard-to-reach majority of their customer data. And THIS is because customer data is trapped in silos, brands can’t resolve identities, and data isn’t connected to and usable throughout all customer touch points.
This is where a Customer Data Platform comes in. A CDP does four key things to give brands access to and actionability for all their customer data:
build, monitor, and maintain data pipes in to a centralized system from all of a brand’s otherwise disconnected customer data sources;
resolve identities to build complete customer profiles;
give marketers direct access to explore and use their data; and
build, monitor, and maintain data pipes out to all a brand’s external systems of action.
With a completely connected customer data foundation, marketers are empowered to use all their rich customer data for improved retention programs. This finally unlocks brands to grow a loyal customer base, a stronger business, and a better bottom line.