Last year, the CEO of JCPenney talked with the Wall Street Journal about “doubling down on existing clients.” That got me thinking about that often ignored, but important aspect of marketing for many companies – retention. For some companies, keeping a customer is far more profitable than acquiring a new one. But is that true for all? I suggest it’s not.
But just as going “all in” on retention is not an effective strategy for most companies, neither is relying on finding more new customers. So how should a CMO decide what to do? It goes back to the age-old question of “who is your customer and what do they want and need?” How likely are your customers to come back and buy again? Well, if your company is one of the many subscription businesses that have popped up recently, the answer is you’d better hope so. Think about the meal-kit companies like Hello Fresh and Blue Apron which offer rich promotions to attract new customers. Without customers who stay beyond the initial promotional offer – in this case a certain number of meals or weeks – these companies would struggle to make a profit. Hence, driving repeat purchases must be a critical part of their marketing efforts. In fact, getting to a realized profit on customer lifetime value likely requires more than one repeat purchase.
On the other hand, in categories where the consumer remains in the category a short time, acquiring new customers is a must. Think about baby products. Once someone has bought a car seat, they are not likely to buy another one any time soon.
New customers are essential in high-priced infrequent purchases. Hard goods such as HVAC units or other appliances are prime examples. The same goes for purchases of vehicles and homes.
If retention and repeat sales is the business model upon which your business is based, here are a few things to remember. First, start with ensuring that you have a deep understanding of your customer, your competition, purchase drivers, and your relevant advantages. With these foundational insights you should be able to determine what customers value most and ensure that your messages and offers align with those aspects of your business. With messages determined, it is time to identify customers’ communication preferences. Too many companies automatically enroll first time customers into overly aggressive email cadences only to end up with a high percentage of unsubscribes. Letting customers opt-in to the communications they want at the frequency they want will bring fewer unsubscribes.
Effective retention efforts go beyond just communications. For many companies, loyalty and reward programs drive preference for their brand. Perhaps the most well-known programs are the airlines. For example, with American Airlines, once you hit the Gold level, the company automatically adds you to the upgrade list for flights. At Marriott and Hilton Hotels, their reward program members get free water and Wi-Fi.
In reflecting more about JC Penney, I think the CEO has it wrong. As customers age and their income increases, many will likely move up to other retailers. And some of the categories CEO Marc Rosen mentions such as silverware, mattresses and curtains face strong competition both online and from fast-fashion retailers like Target. And again, how often does anyone buy a mattress or curtains or silverware? Relying on existing customers alone limits those sales.
To succeed in retail, you must understand your customers and the role that acquisition, and retention have in driving your bottom line. For most companies, a healthy mix of acquisition activities such as paid search, social media promotion and advertising will be essential to gaining new customers. But to keep valuable customers, marketers should look to customer communications such as email, text messaging and social engagement as well as loyalty programs and rewards. Rare will be the company that can succeed by choosing to focus solely on retention or acquisition.
Not sure where to focus? Contact us or schedule a free 30-minute consultation.