Know Why Retention Marketing is Crucial for Your Business Growth
- Posted on May 3, 2023 by Robert
- Reading time about 5 minutes
When we talk about marketing, one thing that comes to our mind is brands using new strategies to attract new customers through ads, TV commercials, etc. However, successful brands are the ones that understand that their growth lies in the value of existing customers. Running a powerful Customer Retention Program can help engage existing customers and encourage them to bring in new ones.
In this blog, we will be discussing retention marketing, and how it can help your business grow and fuel your acquisition channel.
What is Retention Marketing?
Known as a form of marketing that enable brands to maximize the value of customers they already have, Retention Marketing is an approach to engage with customers beyond their initial purchase, turning them into loyal & long-term customers. If you are wondering why retention strategies are essential, it is because returning customers are the ones that are more likely to spend than new ones.
As per the research, acquiring new customers can cost up to 5X more than retaining existing ones, which is why businesses must invest in retention tactics. Different from traditional ‘acquisition-focused’ marketing, the main goal of retention marketing is to encourage repeat purchases and higher product usage from existing customers, not to acquire more customers.
Why Retention Marketing is Essential for Business?
Retention marketing strategies are mainly aimed to engage current customers or dormant customers that need re-activation. As customer acquisition is quite expensive, brands must aim to keep their existing customers happy. This can be done through several strategies such as offering great customer service, engaging regularly & rewarding loyal customers.
Not having a well-planned customer retention strategy can even drive the company into bankruptcy. For instance, even if you put $500 to acquire a new customer, they might churn after paying $ 200 without an active retention strategy, which means no positive ROI recorded after your investment.
Reasons to Invest in Retention-
1. Retention is Cost-Effective & Simpler
Keeping the focus on the retention of existing customers is effective as they know your brand properly and understand your value proposition saving your money on advertising for acquisition. Another reason is that brands have already built a relationship with brands, which means there is a 60-70% more chance of selling to an existing customer as compared to only 5-20% for new customers.
2. Money spent on retention is better than that spent on acquisition
One mistake that many businesses do is giving major priority to customer acquisition when it comes to budgeting for marketing. Research shows spending money on customer retention can be more effective than money spent on acquisition at a lower cost. Enhancing your retention by just 1% can improve your bottom line i.e. larger ROI when you invest in engaging current customers.
3. Retention helps to boost Revenue
Even a slight increase in customer retention of just 5% will lead to higher revenue of up to 25-95%. In the starting months (0 to 6 months), brands put efforts to keep the relationship active but engaged customer spends 67% more in months (31 to 36 months). If we take an example in the eCommerce sector, a customer that has made multiple purchases is worth 5X more than a first-time visitor.
4. Retention can increase the Acquisition
Though the main motive of retention marketing is not winning new customers, your effort to retain your loyal customers can help as the best acquisition strategy through word-of-mouth and referrals, the most trusted means than any other form of advertising.
5. Retention can help to overcome the increasing potential of churn
Customers today have more options than ever; they can easily download any new app and set up an account within a few seconds. 46% of global customers are more likely to try new brands. With no or lesser switching costs, your brand needs a dedicated and robust retention strategy to keep customers in control and make them choose your brand over and over.
Will Retention Marketing Completely Replace Acquisition-Focused Marketing?
The answer is NO! Your business needs new customers, which is why making use of an acquisition strategy is an essential part of the marketing mix. If you are new in the market, acquisition-focused marketing plays an important role to attract new customers that are not aware of your service offerings. Many brands make use of loyalty programs like the Customer Points System that offer reward points to new customers on getting associated with the brand and also offer points to existing ones by keeping them engaged.
If your main focus is on growing your business, you must make acquisition-focused marketing the top priority. However, if you keep focusing on getting new customers rather than keeping the ones you already have, you might start seeing profitability issues.
Quick Tips for Effective Retention Marketing Strategies
– Build a Loyalty Program such as a win-back program and a VIP program that rewards customers for their repeat purchases & encourages them to come back over and again.
– Enhanced Personalization is a must as 78% of shoppers are likely to act only on the brand’s offer if it has been personalized to previous actions.
– Remind positive customer progress to encourage more usage like how much they have saved after becoming the customer.
– Plan a Customer Advisory Group with customers that are willing to discuss product improvements, share roadmap plans, etc.
As we are now aware of the importance of retention marketing, brands need to start focusing on the best customers to realize the profit and sales they expect from their business. Though retention marketing cannot purely replace acquisition marketing, it is quite necessary for the growth of businesses that are looking for opportunities to build meaningful customer relationships.
Novus is an all-in-one Loyalty Program Management Software that enables brands across the globe belonging to various industry verticals to build stronger customer bonds with the right retention marketing strategies. Get in touch with our loyalty experts to build long-term loyalty and drive higher repeat purchases & referrals.