How to retain customers Arthur Middleton Hughes VP Solutions Architect KnowledgeBase Marketing: How to retain customers Arthur Middleton Hughes VP Solutions Architect KnowledgeBase Marketing
A complete customer retention plan: A complete customer retention plan Why customer retention is important
Methods of retention
Recruit right ones to start with
Communicate with them & reward them
Create segments
Predict attrition – Risk Revenue Matrix
Create a loyalty program
Sell them a second product
Get them to become multi-channel buyers
Evaluation of Retention Programs
Tests and Controls
Return on investment
Why retention is important : Why retention is important Long term loyal customers:
Buy more per year
Buy higher priced options
Buy more often
Are less price sensitive
Are less costly to serve
Are more loyal
Have a higher lifetime value
Retention is the way to measure loyalty: Retention is the way to measure loyalty
Retention pays better than acquisition. $100 spent returns:: Retention pays better than acquisition. $100 spent returns:
Basic Retention Strategy Rule: Put yourself in customer shoes: Basic Retention Strategy Rule: Put yourself in customer shoes Say: “What would I want to be on this database? What’s in it for me?”
If you can’t come up with a good answer, the database will fail
Methods of Retention: Methods of Retention Recruit right ones to start with
Communicate with them & Reward them
Create segments
Predict attrition – Risk Revenue Matrix
Create a loyalty program
Who are likely to be loyal?: Who are likely to be loyal? Reichheld points out that
Some customers are loyal – others not
Begin by recruiting the right ones
One insurance company found that disloyal customers were:
Transient individuals
Young people, rather than older people
Single people, rather than married people
Renters, rather than homeowners.
People who respond to low-ball discount offers
People who respond to temporary sales
Recruit relationship buyers: Recruit relationship buyers
Transaction buyers only interest is price
Relationship buyers want a firm that gives good service to whom they can be loyal
How to find relationship buyers: How to find relationship buyers Lowball offers will attract transaction buyers
You cannot make a profit from them
Relationship buyers are interested in good service, high value and two way loyalty
They will stick with you and provide a profitable bottom line
Slide11: Methods of Retention Recruit right ones to start with
Communicate with them & reward them
Create segments
Predict attrition- Risk Revenue Matrix
Create a loyalty program
has a one-to-one customer communications program.: has a one-to-one customer communications program.
Results: Retention goes up 5.6 points
Travelers gains $14,000 per year per agent
Agents gain $2,380 per year
The annual program: The annual program Letter 60 days before annual renewal
Annual review
Thank you card in 1st quarter
Cross sell postcard in 2nd quarter
Newsletter in 3rd quarter
Seasonal card in 4th quarter
The value of a conversation with insurance customers: The value of a conversation with insurance customers 62% of customers who leave, never talk to an agent first
80% of people who talk to an agent do not leave.
Restaurant chain sent $5 reward cards to 4,000 lapsed customers: Restaurant chain sent $5 reward cards to 4,000 lapsed customers Average member visits went from 25 per day before the promotion, to 42 per day.
Average visits per card went from 1.18 before to 1.26 during and 1.22 after the promotion.
Incremental sales were $17,100 during the promotion and $4,700 in the 35 days after the promotion was over.
Communications increased sales and retention.
Slide16: Methods of Retention Recruit right ones to start with
Communicate with them & reward them
Create segments
Predict attrition – Risk Revenue Matrix
Create a loyalty program
Creating customer segments- Many are unprofitable: Creating customer segments- Many are unprofitable This 28% lost 22% of the bank’s profits! Bank Customers by Profitability
Marketing to Customer Segments: Marketing to Customer Segments
A ideal segment:: A ideal segment: Has definable characteristics
Is large enough to justify a custom marketing strategy with appropriate rewards and budget
Has members who can be motivated
Makes efficient use of available data
Can be measured in performance
Justifies an organization devoted to it. Can be part of a person’s time, but there should be someone who “owns” each segment.
Strategy for each segment:: Strategy for each segment: Communications to the segment (direct mail, email, on-location personal attention)
Rewards designed to modify behavior
Controls to measure the success of the strategy
A budget for implementation of the strategy
Specific goals and metrics for engagement: for behavior modification
An organization that accepts responsibility for the segment
Segments and Status Levels: Segments and Status Levels
How one women’s chain segments their customers: How one women’s chain segments their customers
Slide23: Methods of Retention Recruit right ones to start with
Communicate with them & reward them
Create segments
Predict attrition- Risk Revenue Matrix
Create a loyalty program
Slide24: Methods of Retention Recruit right ones to start with
Communicate with them & reward them
Create segments
Predict attrition- Risk Revenue Matrix
Create a loyalty program
Who is going to defect?: Who is going to defect? Besides LTV, you can develop a model that predicts which customers are most likely to leave.
Putting that model with LTV you can refocus your entire retention strategy
You create a Risk Revenue Matrix
Focus retention programs on A and B: 44% of your customers. : Focus retention programs on A and B: 44% of your customers.
Using Risk Revenue Matrix: Using Risk Revenue Matrix Telecom company sent special messages to priorities A and B.
Ignored customers in priority C
Result: Boost in retention and profits
Further results…: Further results…
Slide29: Methods of Retention Recruit right ones to start with
Communicate with them & reward them
Create segments
Predict attrition- Risk Revenue Matrix
Create a loyalty program
What is a loyalty program?: What is a loyalty program? A system whereby a customer has specifically signed up for a program.
She may receive a plastic card with her name on it.
The card is used whenever she shops in a retail store, on the phone or on the web.
The card provides her with some benefit she could not get without the card.
It provides you with valuable information that you can use to understand the customer and build her loyalty.
Who participates in loyalty programs?: Who participates in loyalty programs? Parago (www.parago.com) found that high income households ($125K and more), participated much more in loyalty programs than the average household. Notable participation rates were:
Airline Frequent Flyer Programs 92%
Hotel Frequent Guest Programs 79%
Credit Card Rewards 71%
Retail Store Programs 44%
How do loyalty programs boost retention?: How do loyalty programs boost retention? Program permits you to keep track of customer behavior
You can see if valuable customers are reducing their orders or spending
You can proactively call them, write them, or make them offers Telecom company rewards program results:
A complete customer retention plan: A complete customer retention plan Methods of retention
Recruit right ones to start with
Communicate with them and reward them
Sell them a second product
Get them to become multi-channel
Evaluation of Retention Programs
The value of a second product: The value of a second product
Next Best Product: Next Best Product Collaborative Filtering can be used to determine for each customer her next most likely product.
Customer service and the web have this info available whenever a customer visits or calls.
Tests with GUS, largest cataloger in the UK, resulted in doubling the cross sale rate (from 20% to 40%) using the next best product on the telemarketers screens
Cross sales build retention : Cross sales build retention Customers who have more than one product have a higher retention rate.
Two reasons for second product:
Profit from the new product
Retain customers for the existing one.
An insurance company with independent agents used a model to predict the Next Best Product for each customer
Offered a 10% discount on first product if second is purchased
Selling a second insurance product: Dear Bob & Kitty:
As I figure it, you could save
about $106 per year on your
auto premium. Call me today!
Susan Selling a second insurance product
Automatic follow up note: Automatic follow up note Dear Bob & Kitty
I haven’t heard from
you on the letter on
the new homeowner’s
policy. The savings
on your auto policy
are terrific. Call me.
Susan Hughes
How did it work out?: How did it work out? 89% of agents invited went to web and participated.
52% created personal notes
Recipient HH bought 11% more than the controls
Follow up letter created 8% more sales
Follow up phone gained 43% more.
Slide40: A complete customer retention plan Methods of retention
Recruit right ones to start with
Communicate with them and reward them
Sell them a second product
Get them to become multi channel
Evaluation of Retention Programs
Multi-channel users are more loyal: Multi-channel users are more loyal Illustrative numbers from several case studies
Why the web is important to retention: Why the web is important to retention Web customers are more affluent
Their average order size is 12% higher than phone orders.
The cost of the web order is 16% lower than phone orders.
Typical incentive offered is 5% off on any order over $50.
Result: 11% of non web customers shift to the web every year.
Creating a club on the internet: Creating a club on the internet A company selling sporting goods created an internet member club.
When DB was built they learned that:
Club members bought 11 times more than non club members.
In two years, 81% of club members became multi-buyers.
The club boosted retention
Club Members Retention: Club Members Retention
Cataloger Customer Retention: Cataloger Customer Retention Miles Kimball sent 20,000 emails with three different catalogs, and 20,000 with the three catalogs alone.
Those who got the emails bought 18% more than those who got the catalogs alone.
More sales = Higher overall retention levels
Retailer Customer Retention: Retailer Customer Retention Video retailer sent email newsletters to 170,000 customers for 6 months.
Control group of 14,000 got no emails
Retail sales to test group was 28% more than to those without emails. More sales = Higher overall retention levels
One Click Ordering: One Click Ordering With the web we use cookies to say, “Welcome back Susan”.
We keep her credit card on file if she wants so she can do one click ordering
Result, compared to controls, is higher retention and annual revenue from those who have one click ordering available.
Slide48: A complete customer retention plan
Evaluation of Retention Programs
Tests and Controls
Return on investment
Why controls are essential: Why controls are essential The sales force acquires new customers
Database marketers create higher retention rates
How do you prove this?
Retention program effectiveness can only be measured using control groups
Every marketing promotion should always be a test: Every marketing promotion should always be a test Test those who get the promotion against the performance of those who do not get the promotion
If you are sending birthday cards or a newsletter, select 50,000 who do not get birthday cards or the newsletter.
Look at the control’s spending rate, and retention rate.
If there is no difference, your cards or newsletters are a waste of money.
What to measure: What to measure Attrition and retention of both groups
Migration upward and downward
Incremental sales per program and per season
Frequency of purchases
Dollars spent per trip and per season
Number of departments shopped
Number of items purchased
Share of customers’ wallet
Slide52: A complete customer retention plan
Evaluation of Retention Programs
Tests and Controls
Return on investment
Retention Strategies to be quantified: Retention Strategies to be quantified Find out who your Gold customers are, and keep them loyal
Reward customer loyalty, resulting in increased retention
Increase purchases and average order size
Profile your customers, and acquire new ones with the same profile
Personalize customer’s web and phone experience
Illustration: Birthday Gift: Illustration: Birthday Gift Get customers to record their birthdays with their emails.
On their birthday, send them a birthday Pizza Coupon
One fast food restaurant offered a $10 birthday coupon to 215,000 customers.
Of the coupons sent out, 86,612 were redeemed ($866,120) producing overall sales of $2,900,000 – a sales increase of $2 million.
Slide55: Illustration: Corporate collaboration
Hewlett Packard tested an on line survey to promote their network printers.
Direct mail drove responders to a web site that contained the survey. Responders received $10 in Pizza Hut coupons.
The survey provided a special HP offer for network printing solutions, product links, and e-subscription information.
Live Agent: Live Agent 74% of shopping carts abandoned at checkout.
Reason: customers have some question. They are unsure about the product, service, color, delivery, etc.
Solution: put a live chat button at checkout time.
Have live agents available to answer questions.
Result: increased retention and sales
Caller ID: Caller ID Use Caller ID to bring customer’s complete purchasing history on the screen before the agent begins talking.
Result, she can talk to the customer as if she knew her.
Result: Increased retention. Greater opportunity for cross sales.
Putting It All Together:: Putting It All Together: An average of 19% of customers respond to one or more strategies
The overall retention rate goes up by 19.3%
Orders per year and average order size also increase significantly
These numbers are illustrative. You can create your own numbers using tests and controls
Annual costs of the strategies: Annual costs of the strategies
What should you do to increase retention? : What should you do to increase retention? Recruit right customers to start with
Communicate with them & reward them
Determine their lifetime value
Create customer segments with a marketing strategy for each segment
Sell them a second product
Get them to become multi-channel buyers
Use Tests and Controls
Calculate return on investment
Books by Arthur Hughes: Books by Arthur Hughes From McGraw Hill. Order at www.dbmarketing.com Contact Arthur: arthur.hughes@kbm1.com
Thank you!: Thank you!