How many times can a retailer afford to win – and then lose – the same customer?

The cult of acquisition has dominated over the past decade, as retailers have been encouraged to leverage simplistic Internet metrics to undertake continuous raids on competitors’ customer bases.

Yet the economics of throwing more and more money at the acquisition pipe only to see similar numbers of customers fall out the other end makes zero sense – especially in the current market.

There is only one winner in the acquisition game – and it isn’t the retailer.

As acquisition costs continue to rise, and the rewards diminish ever further it is time to get smart about customer retention.

Thinking again

In uncertain economic times, key business and political strategies are up for review.

While the Chancellor plans his budget reset, organisations across every market are beginning to re-evaluate options – from international trade relationships to investment plans and customer strategies.

>See also: Why e-commerce won’t kill brick-and-mortar retail

In a very challenging retail marketplace, where zero like for like growth is perceived to be success, questions have to be asked about the on-going value of acquisition focused marketing strategies.

This is particularly true as retailers react to Brexit by throwing fuel on the fire of the acquisition arms race, driving costs ever higher.

While Google, Facebook et al have created what appeared to be a compelling argument for an acquisition first strategy, the economics of acquisition have always been slightly questionable.

There is a fairly direct correlation between money spent and customers won, but the reality is that in a finite market retailers are just chasing customers around.

Customers are won from the competition; and lost to the competition; again and again. In the merry-go-round of customer acquisition investment, the only winner is Google.

It would, of course, be unfair to assume that retailers are failing to make any attempts to retain these expensively won customers.

For the vast majority, however, the go-to-strategy is the blanket discount, irrespective of whether a customer would remain loyal without the incentive.

>See also: The desperate need for speed in retail today

This simplistic approach ignores the fact that many customers are actually far more focused on service propositions, product range and quality.

It encourages learned behaviour, with customers actively waiting for Black Friday or end of sale discounts, for example, before making the purchase.

Essentially, this model is cannibalising revenue and fundamentally compromising the economics of retention.

Sophisticated retention

There is no need to take this blunderbuss approach when retailers are armed with fantastic, deep customer information.

A retailer knows far more about its own customers than Google or Facebook could ever hope to discover.

From the products they buy to the channels they use and the frequency of purchase, this is fantastic insight that gives a retailer an ‘unfair’ advantage over any other organisation when it comes to creating customer engagement.

So why not use it? Why not harness this insight to drive additional value from existing customers, boost retention and step away from the acquisition treadmill?

To date, retailers’ failure to unlock that deep customer insight has been not a data problem but one of focus.

Simply employing an expensive data analyst to get to know customer data over 6 to 12 months doesn’t really achieve anything.

>See also: The biggest challenge facing UK business: How to deal with too much data

Where is the business knowledge, the commercial focus or, critically, the authority required to make that data useful? The retailer may discover a few interesting customer facts but without an objective, progress will be limited at best.

The key to unlocking the data is to start the other way around and set priorities first.

Is the business objective to retain at risk customers? Re-engage those recently lost? Up- or cross-sell existing customers? Or simply optimise marketing spend?

Defining the core objective as the starting point can transform the way in which this customer data can be harnessed by the marketing team.

Within a month, a retailer can understand its customer base, identify the opportunities to make more money from each customer, and create a clear map for revenue generation.

>See also: Three ways to use data to keep your customers coming back for more

Once a retailer has understood the motivations and interests of a specific customer, it can become far more sophisticated about designing the right offer for each individual, enabling far better returns.

For example, offering a Formalwear-focused customer who used to buy a new suit every year a free tailoring service, and communicating this in multiple channels, is far more likely to re-engage that individual than a generic discount offer in email – and it boosts, rather than reduces revenue.

Conclusion

It is the financial returns that change the game – especially given the current global economic slowdown.

The value of sophisticated, targeted retention activity far exceeds any acquisition focused customer investment. Generating just one more order from a retailer’s most valuable customers – the 20% that generate 80% of profit – can be worth 10% to 20% of top line revenue.

Compare that to the escalating costs of acquisition and the investment required simply to avoid declining revenues in the face of constant competitor raids on the customer base.

>See also: Why Amazon is not the best sales channel for all online retailers

Retailers have been talking about ‘customer first’ strategies for some time.

With the power to unlock the value of deep customer insight now to hand, it is time for marketers to escape from the cult of acquisition and start actively nurturing customers to boost retention and drive quantifiable additional value from an engaged and loyal customer base.

Sourced by Ian Webster, chief customer officer, Big Data for Humans