Keep Them in the Fold

Strategies and tactics for retaining continuity customers

October 2007 By Shari Altman

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Done well, continuity marketing can be quite a lucrative business. But it also can be a risky business as the profit from continuity marketing comes from a marketer’s ability to acquire a customer once and ship paid products to him or her multiple times. Most marketers lose money acquiring continuity customers or, at best, break even. To be profitable, you must retain customers beyond the initial order.

To improve retention you must:

• Add or increase the number of retention-driving tactics; and

• Reduce or eliminate actions that are retention killers.

Retention drivers are policies or promotion tactics that increase the length of time customers gain meaningful value from retaining their relationship with a marketer. Retention killers have the opposite impact. Note: The key point is that the customer is in the driver’s seat. Assessing whether a policy you are about to implement or a promotion tactic you want to test is a retention driver or killer means putting yourself in your customer’s mind-set. Consider if the action or offer causes customers to feel better about the products they already received, and more or less favorable about getting more items from you in the future.

But remember: “You can’t polish sneakers.” If your auto-replenishment or “product of the month” concept is flawed, no number of retention drivers or elimination of retention killers will keep customers around.

Retention drivers and killers can be measured in lifetime value (LTV) increases and losses. Faced with high acquisition costs, you can best determine how to spend your retention marketing dollars by measuring LTV changes. Confirm that what you think is a retention driver truly is one by looking at its impact on the LTV of your customers.



Keep ‘Em Close

Flexibility is the biggest tool in your retention bag and the most effective tactic for avoiding potential cancellations. “Members want to be in control of their destiny,” counsels Gail Terry, U.S. director of the PONY Book Club at Danbury, Conn.-based Stabenfeldt International. “Don’t let cancellation or return be their only choice,” she adds.

Different customers have different needs. Some prefer to make one payment, while others prefer stretching payments out. Some customers want to receive monthly shipments, and others prefer to receive shipments every other month. The more you can be flexible and let customers determine when they receive shipments, what components are included and how they pay, the more likely they are to find a combination that works for them. This especially is true for auto-replenishment programs.

The Web also can be a retention driver. The low cost of e-mail allows you to notify customers before their next shipment and puts them in the driver’s seat about the timing of that shipment and what it includes. This ultimately offers the potential for another selling opportunity if you offer add-on items in shipment notifications.

Unannounced gifts or bonuses can be huge retention drivers. Everyone loves a gift and can’t help but feel appreciated, which in turn makes your customers feel good about you, the marketer. This especially is important in the first few months or product shipments to solidify your relationship with your continuity customers. To determine the optimum time to start sending these gifts, Terry advises you analyze your continuity database to determine where your drop-off in retention begins. Then, focus gifts and bonuses prior to the point where your retention starts to drop.

David Holtzman, vice president of operations at Johnstown, Pa.-based continuity marketer TBS Industries LLC/Banital, notes this also can be a valuable tactic with long-standing customers. “For that customer who continues receiving continuity shipments time after time, surprise them by giving something free in one of their shipments or an out-of-the-blue discount on a shipment or month of service just for being a loyal customer,” he urges.

And don’t forget to remind your customers of the value they receive with each shipment. Spell out the savings off regular pricing they receive as a continuity customer on invoices and statements. If your program offers points, show them what they’ve earned every time they receive a shipment or make a purchase.

To retain auto-replenishment customers, Holtzman says it is essential to keep up the excitement level. Promotional literature, stories of success or never-before-seen products can all be used to enhance your continuity program, create value and reinforce customers’ ongoing decision to keep buying from you. “Educate the consumer who bought your product or service, and let them know how they can get even more value or benefits from your product,” he explains.

Adding a loyalty program to your auto-replenishment or “product of the month” continuity is another retention tactic that can offer long-term benefits, but one that requires serious forethought. The easiest way to implement such a program is by offering one-time purchases in addition to the continuity program. By making all continuity members automatic members of the loyalty program as well, you add a benefit layer and a reason to stay with the continuity. Benefits can be nonfinancial, soft benefits—such as advice from experts, member-only Web sites and phone lines, and exclusive access to new items or sales—or they can be financial, hard benefits—such as discounts on noncontinuity items, faster shipping without incremental cost, premiums for every nth shipment or points for every purchase. If you don’t have one-time offers to add to your continuity, you still can consider a loyalty program, though you won’t have as many potential benefits to select from and offer.



Wait! Don’t Go!

Now that we’ve discussed retention strategies, it’s time to view the other side of the coin. The biggest retention killer is slow or delayed delivery on the initial or first follow-up shipment. Customers forget, change their minds and, in general, are given the message that you don’t appreciate their business if you don’t deliver when expected.

Barry Blumenfield, CEO of Norwalk, Conn.-based BMI Fulfillment Services, a full-service fulfillment company, notes timing is critical. “The first shipment should be delivered as soon as possible once the order is received. Delays result in customer service inquiries and cancellations,” he explains. Indeed, delayed shipping can slice retention rates in half, and profitability turns into a loss as a result.

Blumenfield also urges that when marketing a “product of the month” club—where products are variable—make sure you can “skip” a shipment if it is out of stock. It is better to send the shipments out of sequence than to miss or delay a shipment due to back orders. Shipment delays leave the door open to cancellations.

The second biggest retention killer is a pricing strategy that creates “sticker shock” on the first follow-up shipment. An example is offering an item that sells for $50 for $1 when the customer signs up for continuity, then billing $50 for each future shipment. This doesn’t mean you can’t discount to acquire continuity customers, just be careful that the difference in price from the initial offer to follow-up shipments isn’t too dramatic.

No matter how exemplary your retention tactics, there will be customers who want to cancel out of the program. A strong “cancel-save” program that addresses the reason customers want to cancel, provides appropriate offers to address those reasons and gives the customer a way to stay, is key. If auto-replenishment shipments are coming too quickly, offer to reduce shipment frequency. If the “product of the month” club is too expensive, offer to drop the customer to a less expensive club program. Sometimes potential cancels can be saved by explaining how a product or program works and how to get the best results.

If shipments contain multiple items, consider offering variable combinations at different price points, notes Blumenfield. If the customer can buy the parts they truly want and can afford, they are much more likely to be saved. He also notes that it’s critical to ensure all customer service reps are well-trained in cancel-save procedures and to test calls to verify reps are offering the correct cancel-save options.

Some marketers get antsy about giving discounts or changing programs for customers who want to cancel. However, it is important to remember that it is always cheaper to retain continuity customers than to resell and reactivate them in the future. Determine what you can afford to give to retain a customer and then do it without hesitation. You save your reactivation cost if you can retain these customers now.

Lastly, don’t forget to thank continuity customers for their business—early and often. A sure-fire way to kill retention is to not appreciate someone’s business. Continuity customers are golden; they are not average buyers. As long as you remember that and treat them with the respect and attention they deserve, they will reward you by staying around and growing your profits.

Remember: To be defection-proof you need to have a concept that customers want, retention drivers in place and no retention killers. Without any of these three elements, you’ll be challenged to reach your lifetime customer value goals.



Shari Altman is president of Altman Dedicated Direct, a direct marketing consultancy specializing in acquisition, continuity, DRTV and loyalty marketing. She can be reached at (336) 969-9538, or by e-mail at saltman@altmandedicateddirect.com.

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