P&G’s former CEO, A.G. Lafley, is credited with turning around the company under the mantra “the consumer is boss” – putting the customer at the centre of everything they do.
It sounds obvious, doesn’t it? Keep your customers happy, be in touch more often (not to sell, but just to show them some love), offer exceptional customer service and then just reap the benefits.
Or in other words, invest at least as much to retain your customers as you did to acquire them.
Every marketer is familiar with the cost advantage associated with retention (acquiring a new customer can cost up to 10 times more than retaining an existing customer...), so one would assume that all companies are focusing on building relationships rather than obsessing about reach and frequency. But the reality is different.
Mass marketing still gets more dollars
One of the most surprising findings of the Econsultancy / Responsys Marketing Budgets 2013 survey was that just under a quarter (24%) of client-side respondents indicate that retention and engagement will be a stronger focus for investment than acquisition in 2013, while 31% will focus more on acquisition.
While dedicating a significant amount of marketing spend to customer acquisition is justified because most businesses can’t sustain a healthy growth rate without acquiring new customers, ignoring the customers you already have can be a costly mistake.
Simon Robinson, Senior Marketing and Alliances Director EMEA at Responsys, said:
“This highlights the very real danger that some marketers are investing too much in mass marketing and not enough to engage with and retain existing customers, and that the value of establishing long-term relationships with customers is being underestimated. Successful marketers in the relationship era will be those who dedicate more resources toward forging real, individual relationships with their prospects and customers.”
Some companies are so focused on pre-sale and sale activity that they take customers for granted, while others treat all customers equally because they don’t have valuation methodologies in place to segment and treat customers based on value. Trying to retain unprofitable customers is like shooting yourself in the foot.
Marketers fail at measuring ROI from engagement / retention
The research also revealed that only a quarter (27%) of organisations rate their ability to measure ROI from engagement or retention as ‘good’, compared to over a third for acquisition marketing. This comes as no surprise when putting things into context:
- Acquisition marketing initiatives are typically measured on short-term sales and profit contributions are easily quantified.
- In the case of retention, short-term gains represent a smal portion of the total contribution to the bottom line and the lasting impact is difficult to predict. While looking at customer lifetime value (CLV) might be an intuitive thing to do, many organisations don't take this step when it comes to ROI analysis.
Measurement challenges are usually the reason acquisition marketing is gaining ground in the retention vs acquisition debate, with few marketers being able to answer the following questions:
- Can we make enough of an impact on customer behaviour to have a lasting impact on customer attrition rate over long periods of time?
- Will our retention programmes only delay defection by a short period of time or trigger even higher levels of churn? (Case in point: Groupon’s demise was largely driven by the focus on short-term promotions.)
- How can we best target highly vulnerable segments to ensure our retention programmes are profitable?
While customer retention is by no means the sole focus of marketers in the relationship era, a consumer-centric approach to marketing is essential going forward. Whether marketers are ready to really engage with their customers is still to be seen.
Is favouring acquisition marketing over retention a sustainable strategy? Do you think customer retention is the Achilles’ heel of many businesses today? Have you implemented any successful retention programmes?