Photo: Nordstrom
Can marketers successfully shift focus from acquisition to retention?
Targeting new customers with ads is getting tougher because of changes being made to protect online privacy, and a new survey says that it is compelling marketers to focus more heavily on customer retention instead of customer acquisition.
Sixty-nine percent of retail marketers surveyed by events firm CommerceNext in a study sponsored by Yotpo said that they are prioritizing customer retention, Yahoo!Life reported. This shift has brought about an increased focus on branding and storytelling, referral marketing and initiatives built around first-party data rather than on the type of third-party customer data and tracking information that is already beginning to dry up.
Digital-first brands were found to be more successful with this marketing pivot than older, larger retailers, though larger retail brands are not without their direct customer relationships in the form of marketing tools like email-based loyalty programs.
Customer acquisition has long been seen as a critical KPI, but the notion that its importance outstrips retention has changed with a growing body of data indicating that loyal customers have larger order volumes and are less expensive to convert. Still the success of many direct-to-consumer startups in recent years has depended on building awareness through ad targeting across digital platforms. Customers, after all, cannot become loyal customers of new brands if they do not know about them.
An increased focus on repeat customers was seen with the boom in subscription-based retail in the mid-2010s which sought to capitalize on a perceived ability of subscriptions to keep customers on board and generate steady month-over-month revenue after their initial acquisition. This came with its own problems, though, as subscription-based retail offerings experience churn as high as 40 percent.
Some marketers, finding digital advertising as a whole becoming prohibitively expensive, are also changing how they pursue customer acquisition, according to Vogue Business. Between Apple’s iOS update (which allows users to opt out of many forms of tracking), increased advertising costs across major platforms like Facebook, Snapchat, Pinterest and Amazon, and the looming end of the tracking cookie, marketers have begun to rethink ad spend entirely. Marketers have begun turning — and returning — to television, direct mail, podcasts and even radio to get the word out about products.
- Digital-First Retailers Miles Ahead in Customer-Centricity – CommerceNext
- Survey: Retailers Shift Focus From Acquisition to Retention – Yahoo!Life
- The fashion marketing shake-up: As Instagram, Facebook costs surge, where next? – Vogue Business
- Why do retailers practically ignore existing customers to go after new ones – RetailWire
- Can subscription retail solve its retention problem? – RetailWire
Discussion Questions
DISCUSSION QUESTIONS: Do you see investing in retention or in alternate, non-digital forms of advertising as being the key to succeeding as a retailer marketer in a post-cookie world? What will a new focus on retention mean for the customer experience?
Poll
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Marketers continually need to adapt their strategies to the most effective tactics based on effectiveness and ROI. It is interesting to note the pivot from the increased cost of social media adverting to traditional advertising such as television, direct mail and radio. Just as customers change, so do marketers.
Too much customer acquisition spending is blind fishing encouraged by the availability of impressive but meaningless data. This has only gotten exponentially worse in the digital world. Customer retention has always been the better ROI on marketing spend. And loyal customer word-of-mouth has always been the best route to customer acquisition. Unless you are a completely new brand in the market, focus on customer retention and satisfaction to grow your business.
It’s always been more expensive to acquire a new customer than to retain an existing one. This is all about relevance and value. Best in class retailers have always understood this and built strategies that engage customers over the long term. The key is relevant communication and high perceived value by the customer for the retailer. This often goes beyond simple offers and coupons. For retailers understanding why your customers choose you over the competition is critical, it allows you to “soar with your strengths” to build lasting customer relationships.
Retailers that focus on the “non-digital vs digital” debate are missing the big picture; the focus must be on the shopper and how to best communicate regardless of channel. We don’t live in two worlds (digital and analog) just one. Businesses grow by attracting new customers AND servicing their existing customers not taking their eye off the ball for either.
Wholeheartedly agree, Michael. In my consulting with large firms, I’m still amazed when I hear “well, that’s the digital team’s responsibility” or “you’re gonna have to talk to our digital team because they operate independent of anyone else in the company.” Wait, what?
Most companies should understand the concept of a seamless, cross-channel experience. This requires a balance of both existing customer retention and new customer acquisition. Both are highly important. Both are necessary. The mix of dollars will change based on prevailing market dynamics, but that’s the job of the professional marketer — to make the right call on spend allocation.
I guess I thought that “investing in retention” was what every brand did with every nickel they spent every day. Simply delivering on the brand promise — every day. And that promise may evolve, or the methodology of delivering on that promise may evolve, with time and market conditions. But hey, that’s the job. Ask Sears. Ask Target. Ask Blackberry. Ask Apple.
Investing in retention has always been a stalwart of Retail 101. It is cheaper to keep a good customer than to acquire a new one, and increasing RFM (recency, frequency and monetary value) can lead to much improved lifetime value (LTV) for customers. Retail 101 states that 20 percent of your customers typically account for 80 percent of your sales. The 20 percent population of superior customers is not a static grouping because people exit or enter that vaunted population because of good or bad customer moments like a botched return. Savvy retailers understand this phenomenon and reach out to this 20 percent whenever they trigger a potential negative event. Either text, email, mail or a phone call can go a long way for retention.
Retailers should also make sure they’re giving customers quick and easy ways to give customer feedback directly, not just via social media. Are customers able to communicate when things go horribly wrong or surprisingly right? The net promoter score (NPS) is not the only way to get a customer’s pulse. Customer retention is about increasing personal involvement with a retailer’s brand first, and sharing that excitement about the brand second.
We can have our cake and eat it, too! Effective retention strategies can lead to higher acquisition rates. It’s an age-old rule of retail: happy customers become advocates and help acquire new customers through word of mouth. We need to invest in authentic and persistent retention strategies that engage, delight and offer happy customers opportunities to become advocates.
Good retention makes good business sense, but it is not cool enough to tout. That is the unfortunate part. Most talk about the number of new customers they acquired, with a cursory reading on how many active ones they have.
The reality is very few have a good sense of what their Customer Acquisition Cost (CAC) is, and even fewer track the Lifetime Value (LTV) with the correct methodology. It takes a strong analytical mindset at the leadership level to look for these metrics.
Most of the metrics tracked are top-line focused – Return on Ad Spend (ROAS) is exhibit A. It just measures sales generated per each advertised dollar. But very few pair that metric up with the order fulfillment costs to see if they are actually making any money. And even fewer do that over the life of the customer they acquired.
Retailers need to focus on retention, but the change will be slow to come. Businesses who do get it are the winners.
In today’s world where consumers are extremely open to trying new brands and less brand loyal, retention should take priority. I don’t see traditional forms of advertising being the key though – we have learned to tune so much noise out that retention marketing really depends on messaging that reiterates the qualities and differentiating factors of a brand. We know trial is mostly driven by a shoppers own mission-driven searches on Amazon or via search engine, but feeling loyal to a brand is motivated by actually loving the product.
Loyalty is lucrative. Companies with lasting relationships listen, understand and adapt to consumers’ evolving needs.
Investing in relationships for retention helps companies earn shoppers’ satisfaction, trust and sales, maximizing lifetime value per customer.
It doesn’t make sense to spend a ton to acquire customers only to ignore their needs over time.
Happy, loyal customers fuel the top line, so companies need to infuse their strategies with retention-building practices. Subscriptions, private labels and exclusive deals can help.
Before you can retain, you must attract and acquire that customer. The two motions go together, and your strategy should never begin with an either/or proposition. Each company will determine the right mix and emphasis.
Investing in retention is typical and can drive a better ROI than finding new customers can. The key is having the existing customer become more than a regular but a fan of your brand: an advocate of what you stand for, the value you provide, and the service you deliver. I echo Jeff’s sentiment that retention is just an ongoing branding and operational effort. It’s just what is supposed to be done for any well-run marketing team and business.
While retention is part of the ongoing marketing organization activity, analysis is needed to improve retention. Fresh data and analytics are needed to understand what is happening now to inform marketing tactics. From my Nielsen days, using panel data, we ran the New-Lost-Retained study for retailers to see what type of consumers were coming in and which were leaving. These groups of customers were typically very different.
It is important to understand the demographics of the lost customer, where they went, what categories they purchased so you get a more complete perspective of the lost customers. From this current data-driven view, you can create strategies to mitigate further losses. If you are losing discount/promo-driven shoppers vs. frequent core shoppers, that will lead to creating and executing different marketing and operational strategies.
As a rule of thumb, it’s easier and less expensive to grow the transaction size/value of existing customers. This is an approach at which many consumer insight companies direct their focus. The reasoning is that if you can encourage the customer to buy just one more item, spend just one more dollar, profitable sales growth occurs ahead of the industry average. However the current state of the market suggests that there is much more available to every retailer than directing focus to primarily growing current customers. Yes, it might be more complicated to attract new customers, and it may take more effort and creativity than required in the past. A large share of customers are looking for new forms of convenience, service, and value. A healthy balance of marketing to existing and acquiring new customers delivers a winning result. I do not see an advantage in turning activities away from acquiring new customers. The value of a new customer who becomes loyal represents far more revenue growth opportunities than the incremental growth of existing ones. If anything, this may be the right time to double down on acquiring new customers.
Market share or wallet share. Hunt or gather. Acquire or retain. The real change for retailers has been that their existing models (regardless of their combination of acquire/retain) has been scrambled. Covid-19, innovation, and CX based competition have put customers at risk with lower switching costs. The consumer is tied down even less with purchasing locally or getting that weekly deal at their local store since they have next day delivery. Hence retention has become more important than before, and customers online and off have begun exploring new avenues. Retailers with an existing customer base need to ensure they will be able to retain it against the onslaught of competition. Loyalty will become a more critical game changer, especially for established retailers.
This question is almost as old as I am and it’s plain said that we’re still having this discussion in 2021. There are increasingly three categories of retailers: leaders, challengers and laggards (aka road kill). The leaders and those challenging the leaders know the value of not only digital acceleration but also the recognition that the best customers are omnichannel (i.e., not just digital) and that even “non-digital” experiences are in fact, hybrid.
The opportunity for marketers in a post-cookie world is to leverage their zero-/first-party data to know their customers, be relevant and pay attention to them, all in order to not only drive retention but to fuel organic growth.
Retailers became too distracted by customer acquisition with the rise of DTC brands that disrupted their product categories. As those DTCs were mostly startups, they focused and optimized for customer acquisition and hoped that the product would “speak for itself” to drive retention. And let’s face it, many of those brands were looking for an exit through acquisition by a larger, legacy brand who would then worry about retention.
That said, it’s a fundamental premise that your most loyal 20% of customers (to pick a number) will represent about 80% of sales. Just ask Ulta Beauty about their loyal customers! Investing in retention is an investment in the long-term success of the business. Investing in acquisition is investing in short-term gains to impress investors or acquirers. It’s another well-established retail norm, that retaining customers is cheaper than acquiring new ones. To retain, you’re essentially competing against yourself and if you do it right, you’re continuing to deliver great experiences to those loyal customers, thus continuing to secure their extreme loyalty. Give them a bad experience, and they’ll leave you. Acquiring means competing against every competitor (and frankly everyone else vying for discretionary dollars) — a much more expensive proposition.
Historically, legacy retailers struggled to leverage the vast 1st party customer data they had, and it was perceived as easier to acquire new customers with simple digital and traditional acquisition strategies — just ask wireless carriers! Now that more AI-driven solutions are available that allow retailers to derive insights from that first party data and really know their customers, retailers can shift their focus to retention and rely more on lower-cost acquisition strategies so long as they keep growing their most loyal customers.