Things change. You don’t have control over that, but what you can control is how you respond. How does your brand respond to a new marketing landscape? Are you ready for the new normal?
The first thing we need to focus on is customer retention.
One of the most prized commodities in any business is customer loyalty. There is a popular phrase, often repeated at meetings and in interviews, that it costs more to get a new customer than it does to keep the ones that are already there. The common sense here is hard to argue with: if a company has already invested enough resources to get a customer’s investment in their product, then it’s certainly worth that company’s time and energy to retain that customer. But what is the actual ROI on spending more resources on customer retention? How much should a company spend?
Well, let’s take a look at the numbers. According to research by Bain & Company’s Frederick Reichheld, the value of investing in customer retention is quite clear. Reichheld’s work demonstrates that raising customer retention rates by 5% actually increases profits by a startling 25% to 95%. A new customer might buy a single product, but the real profit is in a returning customer, who will continually return to a company once they have chosen it as one of “their” products; after a couple of purchases, a person starts to identify with a brand. Psychology explains this. Studies have shown that once a person has formed an impression of something – such as, say, a favorable impression of a company – they’re less likely to change their mind, and will be biased to continue having a favorable impression.
However, while it’s easier to keep an old customer than it is to make a new one, that doesn’t mean it’s effortless – or that spending more isn’t worth it. Statistics show that 42% of US customers will leave behind a company after only two bad services experiences. Baseball might give a batter three strikes before they go out, but when it comes to retaining customer loyalty, a company only gets two chances. A company must give a customer reasons to be loyal to their brand, instead of just expecting loyalty. In this context, it’s easy to understand why an extra 5% of funding so dramatically increases profits.
One noteworthy case study here is Vanguard, the investment management company, which puts a prime focus on the area of customer retention. One of the key ways that Vanguard does this is by nourishing relationships with customers who have a high likelihood for being long-term, and then taking care of those customers once the relationship is established. In 1996, when Jack Brennan became Vanguard’s CEO, the company’s S&P 500 Index Fund costs were just .20% of assets. Under his leadership, with its customer retention focus, they saw a 10% improvement by 1999.
Customer retention rates have traditionally been overlooked, but as evidence mounts regarding the benefit of keeping loyal customers, the picture is starting to change. With these sorts of figures in mind, it’s not so surprising that loyalty programs are on the rise. In 2017, 44% of US marketers are specifically increasing their budget for customer loyalty and retention programs, with 13% doing so significantly.
Bottom line is this: you need to keep the customers you already have happy. And then build off of that base. One of the things TRUE Marketing has found when we develop customer retention strategies for clients, is that it doesn’t have to be complicated. But it does have to be consistent and authentic. So our advice is to invest part of your marketing budget in your current customers, because keeping them happy is the key to long-term success.
And, of course, if you need help navigating this new normal, give us a call or email. We’d be glad to help.
Let us know what you think in the comments below.
This is the first in a 3 part series of adjusting your marketing to the new normal, and responding to it in a way that helps grow your brand and business.