This Week in Retention: How Customer Retention Speeds Companies to ProfitabilityApr 26, 2016 - by Jason Grunberg
We all know why customer retention is worth obsessing over: It’s the surest way to profitable, sustainable growth. Below, UK-based discount and deals site Discount Vouchers shows how customer retention increased profitability, while Peter Geoly lays out the math for publishers. Then venture capitalist Sarah Tavel takes it a step further, showing how customer retention not only helps marketers create better products but can also aid in the creation of a virtuous loop of self-perpetuating growth.
How Discount Voucher Targeted Retention and Increased Sales
Running a deals site is not for the faint-of-heart. In general, discount sites suffer from high rates of disengagement, low purchase rates, and high churn rates.
In 2012, after three years in the online deal business, Surrey, U.K.-based Discount Vouchers decided that the best way to tackle these barriers to financial success was with a sharp focus on customer retention.
“We understood that the only way to achieve brand loyalty was to have a true picture of each one of our shoppers,” said Kathryn Wright, managing director of Discount Vouchers. Once Discount Vouchers’ marketers had started assembling customer data and gaining a single view of its customers, Discount Vouchers personalized email newsletters with dynamic recommendations and implemented personalized send times. The results speak for themselves:
- Purchases: increased 28 percent
- Revenue per thousand emails: increased 22 percent
- Customer churn: decreased 10 percent
Tying Engagement to Profitability
Smart media properties should be designing specialized pricing and packaging to deliver advertising against their most-engaged readers, writes Peter Geoly, senior manager of solutions marketing at loyalty management company ServiceSource.
Geoly’s rationale is simple: A reader that stops by a site to scan a page or two, but never returns, is not nearly as valuable as one that takes in whole articles and visits at least twice a week. Geoly estimates that a highly-engaged reader, or fan, can be worth $3 per month, compared to $0.09 for the one-and-done, or fly-by. At a consumer publication, Geoly writes, 80 percent of page views are generally delivered by 25 percent of the audience.
Reader engagement levels also make a difference when it comes to brand-recall and conversion rates. “Intuitively, this makes sense,” writes Geoly. “The chance to grab the attention of a fly-by is much less than the chance to grab the attention of a fan who reads an entire article.”
Repeat Customers and Self-Perpetuating Growth
Sarah Tavel, a partner at venture capital firm Greylock Partners, presented a novel take on customer retention at this spring’s Habit Summit. While Tavel acknowledged that customer retention is mostly thought of as a strategy for profitable growth, her presentation emphasized the ability of loyal customers to help improve the products they use, and in turn support a virtuous cycle of self-perpetuating growth.
Tavel breaks down this cycle into two parts. She refers to the first half as generating accruing benefits – the steadily improved customer experiences that can be created by the sophisticated use of customer data.
The second half is mounting loss. As customers become more frequent users of a service, it becomes harder to switch without losing their data, and the time and effort they put into creating it. A customer who switches to a new music streaming service, for example, loses his or her playlists.
Over time, the combination of accrued benefits and mounting loss delivers added value. The more a customer uses a product, the more they’ll continue to use it, creating a virtuous loop that improves the product experience for all users—and, of course, encourages them to stay with the product or service, as well.