Why keeping the customer beats finding a new one

The digital world is shifting towards greater user privacy, so digital marketers can expect to have a harder time finding new customers. Yet the key to increased sales may already be in the marketer’s data base. Keeping the customers you have, and keeping them engaged, may be the better strategy towards sales growth.

An often-cited statistic shows that it costs five times as much to find a new customer than to keep one. Yet by more than a two-to-one margin, companies focus on customer acquisition over customer retention.

Reversing that ratio will require digital marketers to use the data they have to reach the customers they know. Greater personalization and a better understanding of the customer journey will be crucial. First-party data will become more valuable as third-party data goes the way of the cookie.

There are several approaches to take, but they all show the same thing: The answer is in the data.

Reality bytes

Way back when data was “new”, it was impossible for digital marketers to build a complete picture of their customers using information from various data streams. The coding needed to integrate those streams was not possible years ago, so each data source fed its own data silo.  “The only option was to bring in new customers,” said Katrina Wong, VP for segment marketing at communications platform Twilio.

The company’s approach is to fuse those first-party data streams using a customer data platform, or in this case, Segment, acquired by Twilio last year. That approach allows the digital marketer to identify the user and recognize their presence in various channels, in effect delivering a single view of the customer, Wong said.

“At this point, the marketer can personalize at scale,” Wong said. If the marketer fails to personalize, the customer stands a 45% chance of taking their business elsewhere, according to a recent study by Twilio, while 65% of customers appreciate personalization, provided it is based on data they chose to share.

Burned by churn

The downside of relying on customer retention is “churn,” where a company loses a percentage of its customer base periodically. It can be due to bad service, problems with the product, a better product or service offered by someone else, or changing tastes and needs.

“On the detection side, there are a number of indicators that gives you the hint or clue  [that]…the customer has a greater risk of churning.” explained Ghadi Hobeika, managing partner at Artefact, a data consulting firm. It could be when the customer logs on and goes straight to the FAQ, looking for the steps needed to end a contract or cancel a service. Or it could be more explicit — clicking on the button to actually end the service. It could be a recent call to customer support—with many questions. Or it could just be an inactive account, or an unopened e-mail.

Marketers can use this data to construct a “churn score”, bracketing accounts into high-value, mid-value and “other” tiers, Hobeika said. At that point, a marketer can take action to re-engage the reluctant customer, offering a free upgrade, free gift, request on how to help better, or a discount.

“All companies want to decrease churn,” Hobeika said. But by how much? “The best benchmark is your own performance a month or a year ago.”

It may be too late

The possibility of retaining a customer depends largely their experience with the brand. “Experience is built over time,” noted Steve Offsey, VP of marketing at customer journey analytics vendor Pointillist. But at some point the experience may not be enough to prevent the customer trying an alternative or severing the relationship.

“Most companies try to reduce churn based on their last interaction [with the customer],” Offsey said. But in truth, the customer probably decided to pull the plug long before that last sale. “The last interaction could have been irrelevant.”

To understand how things go wrong — or right — requires customer journey analytics. Customer experience is not based on one interaction, noted Offsey. CJA “encompasses all touch points across the company,” he said. It is a “determination to see the order of events for each customer and to aggregate up to find commonalities and patterns.”

The customer journey is the sum of actions needed to complete a transaction. Examining this pattern can come closer to idenfitying the real reason why a customer leaves, but can also shows the points in the process that need to be fixed, Offsey said. “It’s not a single interaction.”

It’s a value proposition

“Customers will share information so long as they get something in return,” Lynne Capozzzi, chief marketing officer at digital experience platform Acquia. That means providing value.

One example Capozzi gave was King Arthur Baking. As the COVID-19 pandemic kept many at home, the brand provided value by offering recipes, online classes and a hotline for user support. Another example was apparel retailer Lululemon, which was offering yoga classes online, all the while merging online customer data with instore data to get a better view of their customers. “Customer retention can get easier if the brand is providing a great value-add,” she said.

Brands need to follow this up with empathy. Don’t “speak loudly” to the customer. Put a great customer experience first. Brands get to know customers better the more they interact with the brand.

Customer interaction and communication should yield customer data, which the marketer should keep in one unified database, Capozzi explained. “Machine learning and AI can more easily detect when patterns jump out,” she said.

Playing for keeps

It is widely accepted that retaining a customer is far less costly — and more profitable — than seeking out a new one. So what can marketers do to use their data better to keep their customers?

“Understand the customer experience from their point of view,” Offsey said. “Really, customer experience problems are not marketing problems.” It can be affected by the product, interactions with customer support, retail, storefronts. It comes down to taking a holistic, customer-centric viewpoint, he said.

It may mean the marketer moving away from a hard approach to a soft approach, Hobeika said. The hard approach emphasizes price, product, promotion, advertising — any traditional marketing technique, he said. The soft approach keeps the conversation with the customer open, relies on brand ambassadors, engagement via social media, building loyalty. “It works on the relationship aspect and storytelling of the brand more,” he said.

Marketers can do three things to retain customers, Capozzi said. “Build the best customer experience possible. Have all interactions easy and effective to the customer, and provide value.”

“At this point [in time], marketers can personalize at scale,” Wong said. That means knowing the right time to reach the right person with the right experience, she said. “Marketing 15 years ago was more art than science.” Now, with data and technology, it’s more science. “The best data wins.”