Customer Retention: More Important Than You Think
Customer retention is much more than simply measuring how many customers are still active 12 months after they begin a relationship with your company. It’s much more than trying to please everybody who walks in the door or orders from your online store. It is, in fact, a perpetual process that is all about profitable allocation of limited resources.
It’s how best to focus your dollars to know where customers are in the buying cycle, what behaviors distinguish one customer from another and which customers are worthy of effort in moving them toward upward migration. The key and often overlooked component of retention is to have the discipline to ignore the disengaged.
Too often, retention is approached as one-size-fits-all. Too much energy is focused on plugging the drain, keeping every customer. What ends up happening is that companies spend too much money on customers who aren’t worth it and not enough on customers who are ready, willing and able to move to the next level of engagement.
Not All Customers Are the Same
The segments outlined here are based not only on current profitability and engagement, but on future potential. In order to place customers in their proper segment, the following questions should be answered:
- What are they buying?
- How often are they buying?
- Which channels are they using and why?
- How has this pattern changed over time?
Analytic techniques, such as behavioral segmentation, are quite helpful in not only answering these questions, but also in creating a reusable framework for segmenting customers on an ongoing basis.
Getting to the ‘Why’ — Moving Beyond Transactional Data
Why customers behave the way they do is just as important as understanding what the behavior is in the first place. Focusing on transactional data alone can be limiting, as it only focuses on the “What” and ignores the “Why.” Investing in primary customer research or making use of third-party attitudinal or behavioral data is an invaluable way to gain insights into customer motivations. In this day and age, companies have access to virtually unlimited data beyond simple transactions. Social media, Web habits, channel preferences, lifestyle segments and many other sources can be useful areas to add color and context to your data.
Fill In the Gaps
During the process of uncovering customer behavior patterns and the triggers that initiate them, it’s inevitable that a company may find a gap between what the customer is looking for and what the company currently offers. Depending on where the customer is in the value chain, it may be necessary to tweak your product or service offering, or the features associated with it. You may discover that your organization has been neglecting a certain communication or buying channel. Invest in filling the gaps to ensure your highest-value and highest-potential-value customers have a clear path to growing their relationship with you.
Building the Analytic Toolbox
Building a dynamic and effective retention strategy requires a great deal of knowledge about the customer, their behaviors and how your organization is set up to respond and optimize its business practices. A broad range of analytical techniques can be used to make this happen. No matter what strategy you end up adopting, clean, consistent and up-to-date transactional data is critical. Taking advantage of a robust customer database through techniques such as transactional segmentation, behavioral segmentation, clone modeling, best customer modeling, seasonal buying analysis, risk modeling, lifetime value analysis and many others can be leveraged as invaluable tools that your organization can draw upon to enhance its understanding of its customers.
Start with a solid understanding of your customer and what motivates them, determine which customers require additional investment and which do not, fill in any gaps on the purchase path that may be missing and support your strategy with fact-based analytics across multiple subject areas. Adopting this kind of informed, analytics-based strategy will ensure your limited resources are being spent in a way that adds to the bottom line.
Related story: Finders Vs. Keepers: 2017 Acquisition and Retention Trends