Why Customer Retention Is the New Marketing

You’ve heard it a thousand times: marketing is all about attracting potential customers to your business.

As marketers, we love to talk about the tactics we use to do our jobs.We write articles, gather in meetups, and organize conferences to discuss topics like branding, SEO, media buying, display advertising, branded content, and much more.

However, what happens after a prospect becomes a customer is rarely discussed. Sometimes marketers feel like it’s their job to bring people to the business, not make them come back after their purchase. This can be a big mistake.

Think of marketing as a funnel where you attract a wide net of people to your website and slowly incentivize them to become more interested in your offerings. With this model in mind, marketing represents only the beginning of the funnel, the “top of the funnel” as it’s known.

There’s something more important that happens at the end of the funnel (i.e., after someone make a purchase), something that, if done right, can help you increase your revenue substantially. It’s called retention.

In this post, you’ll learn why you should focus on customer retention to grow your business.

What is retention?

The act of making customers “come back again and again” is retention. Retention is a group of marketing tactics you use to bring people back to your company. Just as you use tactics to acquire customers, you use tactics to keep them engaged. Since retention begins after a purchase, marketers need to reframe the way they think about serving their customers.

In a recent article about the future of email marketing, Samantha Anderl, Senior Director of Acquisition Channels at Campaign Monitor, said the standard marketing funnel no longer exists. Focusing only on acquisition won’t do it anymore. There are more things to a marketing funnel than acquisition.

A new marketing funnel has emerged and merges pre-purchase and post-purchase stages to present a complete view of the entire customer lifecycle. Multi-channel, multi-touch, multi-path customer journeys are the new marketing funnel.

How retention changes the marketing paradigm

Marketing has historically been focused only on tactics to attract more people to a brand.

Retention changes the marketing paradigm: you no longer just look for new potential customers; you focus on making more money from your existing ones. This is not to say that you should stop doing “traditional” marketing altogether; rather, you should complement your marketing tactics focused on acquisition with those that focus on retention.

Take search engine optimization (SEO), a classic digital marketing tactic, as an example. SEO focuses on making your website attractive to search engine bots, which can increase your websites position in search results (SERPs), thus attracting more organic traffic to your site.

Every time you publish a new page that you want to rank in the search engines for a given keyword, you need to invest to attract links to it (which are one of the most important ranking factors). Depending on the industry, a link building campaign can cost from $100 to over $10,000.

Contrast that with a retention tactic: email post-purchase automation. As we explain here, using email post-purchase customer journeys helps you bring qualified traffic to your site, people to whom you have already convinced of making business with you. They already know you, and if you did a good job with your first sale, they probably already trust you, as well.

The cost of such campaign would be low. You need to compute the creation of the emails; copy, design, timing (which needs some analytics skills to optimize), and the cost of the email marketing provider.

The pricing delta between an acquisition campaign and a retention one can be high. What’s more, the ROI of the latter can be much higher than the former, as you are targeting people who already know your brand.

According to the book Marketing Metrics, selling to a new prospect has an average profitability that ranges between 5 to 20%, while one that targets an existing customer ranges between 60 to 70%. In other words, it’s more than 350% more profitable to sell to an existing customer than to a new one.

Don’t get me wrong; retention is more than sending an email; it’s about personalizing their shopping experience. If someone buys a product, they likely want more products related to it, at a similar price range, targeted to their own demographics.

By focusing on retention, you can increase the rate of a customer purchasing again as well as increasing the order frequency and the average order value of each repeat purchase. This, in turn, increases the customer lifetime value (CLV) as well as your long-term profitability.

Retention tactics you can use

Back in the day, a company could only hope that their customers would come back. The one-on-one attention they could provide and the way the business owner knew what their customers wanted helped them create a more personalized experience, which in turn drove retention up.

While the online world provides countless opportunities—more selection, better prices, and convenience, among others—at the same time, it creates friction in the shopping experience. You no longer know what each specific customer wants and likes.

With the help of technologies like big data and AI, you can discover what people buy, and based on that, recommend possible purchases which drive the retention up.

I don’t want to get bogged down in the details of the technology, however; I want to show you how you can get started with retention.

You have many options available you can use to get started with retention. To illustrate what I mean, take a look at the following stats:

• According to a whitepaper done by Emarsys, 80% of businesses surveyed relied on email marketing for customer retention.
• The same study found 44% U.S. retail professionals said social media drives retention.
• Emarketer did a survey where 56% of marketers considered email marketing to be the most effective method of reaching customer retention goals.
• 37% of U.S. retail professionals have said retargeting drives customer retention, 21% said affiliates drive customer retention, and 18% said referral marketing drives customer retention.

As you can see, there are many tactics you have at your disposal. But if you take these statistics as our main data point to measure future steps, then it’s clear that email marketing is the best.

Whatever tactic you use, remember that retention is part of a bigger customer journey. If you fail to sync your retention strategy with the acquisition one, it may fail to deliver results.

Finally, I suggest you take a look at your analytics and see what works best for you. Make use your strengths rather than following some stats. If you or your team have a good grasp of email marketing, get started with it. Otherwise, use some of the other tactics described above.

Retention and loyalty

After you read this far, you must be thinking whether retention isn’t just another buzzword for loyalty. The fact is, they are quite related but aren’t the same.

Retention measures the frequency in which an existing customer continues to do business with your business, while loyalty measures their predisposition to select your business as their main preference.

In other words, when you attract a customer to make business with you for a second time, she has been technically retained, but the reason why she did so isn’t due to her loyalty towards your company. The reason why she bought from you for a second time may have to do due to better pricing, better selection, and better shipping rates, among other reasons.

The value she receives may end up making her loyal to your company, but not necessarily so.

While loyalty is related to your brand and positioning, retention is only a part of it; the activities that lead to the former, if you will.

Your ultimate goal is to drive retention up while making customers loyal to your brand. Take a look at the previously shown funnel; only after retention you see “expansion” and “advocacy.” While this is a topic for another article, you want to focus on retention, so you can end up with loyal customers.

Wrap up

In 2018, marketing will continue to face changes which will challenge its traditions. Now that it’s becoming easier for marketers to make use of technologies such as AI, big data, and machine learning, the way marketing is done will continue to evolve.
Along these technological advances, marketers also need to open their minds and focus on activities that extend beyond customer acquisition. Overlooking the sales funnel and working only on a part of it won’t cut it anymore.

In 2018, the new extended funnel will push marketers to work on the other parts of the funnel, the ones where the ROI lies. Retention has become the new marketing.