Anyone with only a minuscule understanding of business will know that even the best of the industry go through phases where their revenues plateau. Often times, owners turn to customer acquisition instead of focusing on customer retention. In terms of the BCG Matrix, these are businesses that become stagnant at the cash cow stage on the lower end and struggle with improving their profits.
To get out of this plateau and regaining their cash-earning abilities, most businesses revamp their marketing to encourage further development. Most marketers will tell you that they plan strategies such as product line expansion to tap into a new market or cash in on the blue whale for their business. This roughly translates to creating strategies that focus on new customer acquisition.
While this seems to work, it’s not always the right strategy that a business relies on especially when its primary goal is to increase profits. So the other two strategies businesses use are increasing the number of products sold to each customer and/or increasing the value of sale (price restructuring, etc.). The latter of the two other strategies mentioned above delivers the most when it comes to boosting profits. Many marketing experts will attest to that by increasing the value of each sale for existing customers to profit maximization.
In this article, we will cover the difference between customer acquisition and retention for digital businesses. This includes tips for how to effectively focus on the customer, instead of gaining new customers. You will also learn how this strategy can make you more money (and save you money) by decreasing the amount spent on ads and marketing campaigns.
Why Customer Retention?
In a world full of marketing possibilities and strategies, you might ask why we focus on customer retention. The answer to the question lies in understanding the premise behind customer retention.
In crude terms, customer retention refers to the total number of initially acquired customers a business is successfully able to keep for a long time. The said “long term” and customer figures may look different for each individual business.
For example, a magazine that runs on a monthly subscription model won’t consider a customer staying on for just 12 months impressive. For a salon, on the other hand, a customer coming back to them for all beauty services for the entire year will be a feat.
Regardless of how a business defines their figures, the longer they can make a customer stick and buy from them, the better off they are.
Considering the Cost of Customer Acquisition to Increase Profits
According to Neil Patel, a marketing expert, acquiring a new customer from scratch is five times more costly than retaining an existing customer. Based on this fact, the investment you make to retain a customer is well-served.
To acquire just one customer, you need to focus your efforts on being appealing to new customers. With various barriers along the way, customer acquisition is a difficult process that involves gaining a customer’s trust and then encouraging them to spend money on your brand.
According to Monetate’s survey of more than 2.5 million e-commerce sessions, this is particularly true for e-commerce brands. Customers with one or multiple purchase history are more likely to convert and earn almost six times more revenue than a new shopper.
Retaining a customer is easier than having to acquire a new one. You don’t have to spend money to introduce and position your brand in the customer’s perspective.
An existing customer is already aware of your offerings and brand images. This way, there is no learning curve for them. You only need to come up with strategies to keep them engaged and have them coming back.
So how does one put effort into retaining customers?
Here are a few tips and strategies that you can adapt to your business to improve your profits without spending money on new customer acquisition.
Evaluate Customer Loyalty
When it comes to customer retention, loyalty is a key factor. It is the very value and sentiment a customer places on your brand that compels them to not just come back for a purchase but also choose your business over its competitors.
Just because a customer chooses to make repeat purchases from your business, it doesn’t mean that they are loyal. For instance, your business might just be convenient for them at the time of purchase. If they find a more convenient alternative, they may switch.
To illustrate this point, imagine you own a bakery. Let’s say you have a customer that likes to buy fresh bread every night comes in every day after work to get it. Since there is no bakery near their workplace or home, they don’t mind making a 10-minute drive off their route to buy it.
However, a bakery opens up near their home or right by their workplace that’s just 2 minutes away on their route. A customer who’s loyal to your bakery will still make the drive to come to you, while a simple repeat customer will make the switch.
These days, email marketing and social media are the best tools at hand that businesses use to foster loyalty. We discuss these topics more ahead.
Creating Impactful Email Marketing Strategies
Email marketing to some might seem like an irrelevant strategy now. But stats prove that email marketing still works, especially for retail businesses. So make use of it.
However, we suggest that you keep it simple and don’t over complicate them. Ensure that whether you market promotions or email newsletters, your emails deliver value to the customers.
You can use emails to announce customer-relevant news, promotional offers, the release of new products and other updates, order confirmation, cart abandonment, and occasional surveys. But manage the frequency of emails as spamming only pushes customers away and compels them to unsubscribe from your list.
Also, make note that not all existing customers might be on your mailing list. You can use as an opportunity as a part of your retention strategy and have them sign up.
Communication with your customer
As an encouragement, you can offer a discount or some other incentive to get them to subscribe to the list. For your website, you can plug in an opt-in CTA (call to action) on check-out or as a pop-up. You can offer the same incentive here as well.
Even if they are automated, emails are a form of direct communication with your customer. Including their first name and using a friendly tone all make a huge difference and make it more personal.
You can also use email marketing to reach out to inactive customers and get them re-engaged with the brand. For example, some retailers send “We Miss You” emails to regular customers that haven’t made a purchase in a long time or haven’t logged into their accounts.
On the contrary side, for customers who have stuck with you for a long time, you can use email marketing to reward them. By doing so, you’ll be acknowledging the customer’s presence while appreciating their loyalty to your brand and building a more meaningful connection with them.
Use Social Media to Connect with Customers
If you keep up with social media, especially Twitter, you would have seen or at least heard about the fast-food chain Wendy’s posting hilarious replies to other tweets. In fact, they replied to a customer’s tweet that said they will buy the entire menu if Wendy’s replied. Not long after, the customer shared a picture of their order.
Not only did this help the business connect with customers but also attracted the attention of new customers. You can say that simply being active on Twitter paid off and got more attention than traditionally.
Customers are more active on various social media accounts than your website. Conduct an analysis and see which platform the majority of your customers interact with your brand. Choose the ones that are most active and use them to increase engagement.
Some of the most widely used ones include Facebook, Twitter, Instagram, and YouTube. There are some newer platforms, especially streaming applications like Twitch that have become quite popular.
You can use live streams to create live content. Instead of randomly going live, schedule a time and plan out what you’re going to stream.
Other than that, you can increase engagement by responding to comments and customer service queries quickly, running exclusive promotions, and posting consistently.
Enhance Customer Experience
Well-thought-out customer experience goes a long way while you’re trying to retain customers to improve profits. It’s so crucial that just one bad experience can turn a long-term customer away from your business for good. According to Invesp, approximately 89% of businesses consider customer experience as a driver of loyalty and retention.
Regularly reevaluating the process and coming up with ways to improve customer experience pays off. Put yourself in your average customer’s shoes and build a step-by-step purchase journey that they find easy to follow.
More than 88% of consumers say that they would pay for a better customer experience. Most of them will even go as far as to give recommendations and suggestions for what improvement you can make.
Using Google documents, email marketing or some other platform, you can create surveys to give the customers a chance to speak their mind. This will not only provide productive feedback but also show that you value what the customers have to say.
Even if you receive complaints, you can take the opportunity to salvage your relationship with that customer. When customers see changes being made, they will be reassured that you value the business and loyalty they give you.
Some common areas of complaints include:
- A complicated or lengthy checkout process
- Generic or automated content
- Websites that don’t work on mobile devices
- Bad customer hours
Making improvements in these areas will improve the customer experience significantly which in turn improves your profits. You can even go one step further and create polls on social media to ask about whether the customers like the changes you made or not.
Cross-Selling and Up-Selling to Increase Profits
We mentioned at the beginning of this article that by increasing the value of each sale works for customer retention. Meaning that by getting current customers to spend more on each purchase by offering more value will generate more revenue. Outsourcing your financial needs to experts can also help manage the cash flow to ensure your business stays on track.
Most marketers use two main strategies to manifest this idea into reality. The first one is cross-selling and the second one is up-selling.
Cross-selling refers to getting your customers to purchase another product. The catch is that the product you are encouraging them to buy is complementary to something else they have already bought. However, there should be no tie-in between the two products i.e. when a customer has to buy one to buy the other.
For example, a smartphone manufacturer might be selling phones. To increase their revenue, they will cross-sell headphones or smartphone insurance as they are complementary to the product the customer is there to buy.
Up-Selling to Increase Profits
Up-selling, on the other hand, entices a customer to buy a higher-end or more expensive products, add-ons or upgrades. For example, if a customer is purchasing a basic printer, you can up-sell and recommend an upgrade.
If you have an e-commerce store, you can use the “recommendation” section below products like Amazon does to up-sell or cross-sell products. You can also use the checkout page to do the same.
On the other hand, sales executives can use the same strategies while directly communicating with the customers. Remember that regardless of whether you cross-sell or up-sell, the product should add value to the customer’s sale.
According to Influitive/Konye Marketing, 37 percent of 202 B2B companies use both strategies to increase their revenue on each sale.
If you combine these strategies with excellent customer experience, you increase the chances of the customer sticking with your business. As we mentioned before: customers, whether loyal or not, are willing to pay more for a better customer experience.
In the End…
We understand that acquiring new customers is exciting for a business. However, making sure customers stick around your business for the long haul is crucial. It’s not only important for improving profits but also creating a strong brand image and earning market share.
We also know that customer acquisition not the only way of improving profits. Focusing on customer retention is not only easier, but it’s a significantly less expensive strategy to implement.
By rewarding loyal customers and paying close attention to your customer experience, you can drive more profits without having to spend more money on new customer acquisition.
Learn how to improve profits, save money, and increase your bottom line with help from outsourced accounting and finance experts.
