This Week in Retention: How Customer Retention Speeds Companies to Profitability
By Jason Grunberg | April 26, 2016
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.
—Jason Grunberg, Director of Content Marketing and PR at Sailthru
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