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Customer Retention. Automated

Retention Marketing is 2.5X as Efficient as Acquisition Marketing

Posted by Matt Williamson on Jun 17, 2013 3:33:00 PM

We all intuitively know it and say it. "Our best asset is our customers!" The Adobe Loyal Shopper's Report (launched in April 2013) put some real numbers to it, so we took it a step further to demonstrate numerically how much more effective and efficient retention marketing can be.  To be clear, this isn't a call to drop acquisition marketing...  far from it.  But, what is important to digest is that for businesses who are trying to find new sources of competitive advantage, it is empirically possible to demonstrate that your existing customer base might be your newest source of gold.

41% of Revenue Comes from Existing Customers

8% of Retail Site Visitors are Repeat Customers

The first finding published in this report demonstrated that 8% of website visitors are returning customers who have purchased once before, or repeat customers who have purchased multiple times.  These are customers that you have already acquired, are already demonstrating loyalty, and who are likely returning to you through channels that are much more capital efficient than acquisition.

Note below how a whopping 41% of your revenue comes from existing customers!  

The dark side of this analysis is that 92% of your visitors are people that do NOT have an existing relationship with you.  They are making a purchase based on nothing about you other than deal terms...  are you the cheapest?  Are you offering incentives like free shopping?  These are margin crushing and difficult ways to make money.


Loyal Shoppers Create 41% of a Retailer's Revenue


You Get What You Pay For

Forrester Marketing Spend

 The next interesting nugget about retention marketing spend comes from Forrester.  They've identified that fully 78% of a marketers spend is on channels that are traditionally geared towards acquistions... SEO and display advertising. It's not shocking, then, that the results most marketers are getting are high percentages of first time shoppers.

Source: Forrester US Interactive Marketing Forecast 2012-2016

Putting It All Together...  Retention is 2.5X as Efficient as Acquisition

Here's a quick exercise to demonstrate the power of that retention marketing spend.  By taking a hypothetical $50M retailer, and building some assumptions, we discover that the retention marketing spend is quite a bit more productive than the acquisition spend...  2.5X as efficient, to be exact.

Let's break this down...

Assume a $50M top line revenue.

Then assume 10% of top line revenue as marketing spend...  Hence, $5M.

Retention 2.5X as Efficient as Acquisition

Now, break that down along the lines suggested in the Adobe and Forrester reports...  that means that you can calculate both the revenue and the marketing spend for existing customers and channels, and net back out what impact its having.

In this case, you can see that this retailer is generating $20.5M from existing customers, but only having to spend $1.1M to get it...  A simple ROI of 19X.

The key takeaway here is that the retention marketing spend is generating 2.5X the ROI.  But in the case of acquisition, the marketer is spending $3.9M to drive $29.5M.  Still an 8X ROI, but not nearly as efficient as the acquisition spend.


So, Why Aren't More Marketers Focusing on Retention Marketing?

Marketers are smart.  They will deploy their spend in the areas that they believe will generate the best revenue.  So the issue here is that Google and others have made is incredibly easy to do acquisition marketing.  You can test for just a few bucks.  The results are immediate and obvious, and you can scale those results quickly if the metrics warrant the spend.

Retention Marketing has traditionally been difficult.  You have several non-trivial problems that you have to overcome:

  1. Get the Data - You can't effectively market to your existing customers if you don't know what they've purchased.  And while lots of folks out there are promising easy integrations, marketers generally find that you get what you pay for with free or low cost integrations, from ESPs or app marketplaces.  Simply put, eCommerce systems, analytics systems and marketing platforms are complex, and without some pretty robust technology, "snap in" apps are hit and miss at best.
  2. Analyze for Retention - Marketers are being inundated with a bevy of business intelligence (BI) tools and predictive this-and-that's that all promise enlightenment through pretty graphs.  But visualization isn't enough.  You have to know what you are searching for.  So the act of extracting true knowledge about retention can be very tricky indeed.  It befuddles most marketers.
  3. Execute Against Best Practices Retention Marketing - Assuming you've got the data and the ability to analyze for good retention marketing, you now have another hurdle...  you have to execute!  Egads!  There are a lot of platitudes out there, but because most people haven't solved problems 1 and 2 above, there's not a wealth of down and dirty, nitty gritty best practices around how to keep one's customers.  You'd be surprised at how many of them you may already know... but logically ordering them and executing against them is quite another matter (hence, Windsor Circle's 9 Pillars of Retention Automation!).
  4. Retention Metrics - Finally, you have to measure something other than clicks and opens to figure out if you're moving the needle.  This too can be elusive.  Are you tracking Share of Wallet?  How about Customer Lifetime Value?  Retention rates over time?  Is anyone in your organization bonused or compensated on getting more customers to repeat.  Probably not.  But guess what...  this is why so many marketers struggle with retention.

It'd be a shameless plug (ok, here comes shameless plug) to say that we know a vendor that can help with all of these.  Making Retention Automation "Adwords Simple" is the reason we started Windsor Circle.  If you think you can make more margin from your existing customers, you are right.  If you are befuddled by how to execute against this efficient source of margin and revenue, you're not alone...  most marketers struggle.  And, now, there's a platform and a company that can help.  Ping us if we can be of service. And be sure to play our new game to learn how to get more value from your existing customers.


Customer Lifecycle Marketing Game for Retailers


Topics: Customer Retention

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