Marketing in a pandemic: why retention

Marketing in a pandemic: why retention, reactivation & loyalty is a sure-fire survival guide

Published on 12/10/2022

As the saying goes, “hard times reveal your true friends.” So now, as the impacts of COVID-19 chew into your marketing budget, it’s time to reward your customers and watch them repay the friendship through their continued and growing loyalty.

Every organisation is examining operating costs and seeking across-the-board savings. Marketing is not immune and is a key area of scrutiny as boards and exec teams seek to constrain costs to just the bare necessities.

Why all marketing shouldn’t be treated equally

In the corridors, I’ve heard the need for “20% cuts across every area in marketing.” But is this wise? Isn’t marketing the lifeblood of acquisition and retention for an organisation? At worst, surely some branches of marketing are more worthy of protecting than others? And shouldn’t existing customer marketing be at the top of the pile in terms of your marketing investment priority?

It’s a well-established fact that 44% of companies have a greater focus on customer acquisition versus the 18% that focus on retention (eConsultancy). Meanwhile, a study by Wharton Business School indicates increased advertising spend lifts revenue for just one in three established products.

These statistics offer a scary disconnect between spend and performance. We might conclude brand building and acquisition marketing are, themselves, marketing tactics which act as a sugar hit to the career marketer, interested in their own fame and glory. Certainly, in traditional mass marketing, brand activity attracts the lion’s share of spend and energy. Yet, statistically that spend and focus is irrational when matched to performance metrics.

In fact, decades of research prove the most cost-effective marketing is in retaining, growing and deepening the connection with existing customers. The probability of selling to an existing customer is 60-70%, while contrastingly, the probability of selling to a new prospect is 5-20% (SmartInsights). It’s no surprise then, that customer acquisition is 5 times more costly than customer retention (Forrester).

I could go on; the statistical argument is a landslide. It all makes intuitive sense too. Think about it, we buy stuff we know from people we know. And we buy more from people we like and trust.

The most profitable customer is often overlooked

Most importantly, marketing to existing customers is good for the bottom line. A study by Bain and Co. shows increasing customer retention rates by just 5% increases profits anywhere from 25% to 95%.

Returning customers tend to grow in value, buying more from a company over time. As they do, your operating costs to serve them decline. Customers familiar with products or services will spend less time having your team onboard or troubleshoot for them. What’s more, return customers will often be prepared to pay a premium to continue doing business with you, rather than switch to a competitor, with whom they’re neither familiar nor comfortable. And they are advocates, referring new customers to your company.

In short, while acknowledging you can’t run a successful business without acquiring new customers, most organisations are grossly over investing in digital product and brand-centric acquisition marketing.

Are those businesses are seeking glory at a great cost – foregoing an achievable return on offer through effective customer management?

How to create a loyal customer

When you’re under pressure to perform, it’s a smart move to invest in your existing customers, turning them from one-time users to frequent users, and then from frequent to loyal. But exactly how do you do that?

Firstly, look at the budgets you have. What if you redirected 50% of the total budget on customer re-engagement, retention and loyalty?

Then look at the outcome you seek from that budget. Near-term revenue and profit are sufficient barometers of performance. As Tom Peters says, “What gets measured, gets done.” So, begin with a focus on shifting desired customer profitability outcomes.

Pushing customers to re-engage in your platforms to attain maximum Share of Wallet while increasing Average Revenue Per Unit (ARPRU) are great proof points to monitor. Meanwhile, employing Recency, Frequency and Monetary variables (RFM) across the base helps create segments and messaging strategies appropriate for each individual.

Consistently calculate customer retention rates, analyse and optimise your progress over time to ensure you’re moving the needle in the right direction. And never stop testing and optimising!

Formal loyalty programs

In all, earning customer loyalty is complex. A study by KPMG showed that loyalty is earned through multiple factors, from product quality and price competitiveness to corporate transparency and customer service. A formal loyalty program is just one effective way to build loyalty, although 37% of customers in the KPMG study listed a loyalty program as an essential building block for their loyalty. Similarly, McKinsey & Co proved loyalty programs in the USA can change customer behaviour by showing an increased frequency and choosing one brand over another.

A global study, by LoyaltyOne, found that 95% of firms reported greater spend by member customers than non-member customers. A quarter of those said members spent a whopping four times as much as non-members. Certainly, the scale of spend is large. “On average, loyalty program members contribute almost half (43%) of total annual sales.”

The answer is not always a loyalty program

Businesses that want their customers to keep coming back for years must make a commitment to providing an excellent customer experience (CX). According to Gartner, CX drives over two-thirds of customer loyalty, outperforming price and brand combined. 89% of companies see customer experience as a key factor in driving customer loyalty and retention (eConsultancy).

A loyalty program is not necessary to create loyalty itself, says customer loyalty specialist, Adam Posner. “Loyalty is not a program. The program is the tool that drives the outcome. Loyalty is expressed when people love a brand, when they have an affection that goes beyond the mere transactional. In a technical sense, I describe it as the intersection of behaviour and belief, where the behaviour is the transaction and the belief is the emotional connection.”

To get some immediate “bang for buck” and return customer, organisations are wise to initially focus on experiences that enable customers to feel that they’ve made the correct purchasing decision and are personally benefiting from using the product or service.

Qualitative customer feedback, reviews, and VoC metrics should be embedded into customer journeys to capture what’s most memorable and important to customers. Again, a focus on constant customer-centred feedback loops, will improve always-on performance, customer satisfaction and with it, loyalty.

So, what do we think now? With all the evidence considered, it’s plain to see all forms of marketing are not created equally, as indeed all customers are not created equally.

A playbook for the wise marketer

Marketing tactics to known customers through owned channels avoid the outlay of expensive media, while ring-fencing the individuals already pre-disposed to purchasing from your brand.

The wise marketer will not make a blanket cut to marketing spend. Instead, they will carefully consider which branches of marketing to reduce, what to maintain and in the case of customer marketing activity, what they may even increase, to hit what are undoubtedly challenging KPI’s.

I’ve been known to gamble on occasion, and for the best performance and return-on-investment, I’d be placing my big bets on customer retention, re-engagement and loyalty.

Back to my earlier consideration – what if you redirected 50% of the total budget on customer re-engagement, retention and loyalty? Appreciate your thoughts…

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