Upcoming Strategic Ways to Target New Clients & Retain Existing Ones
In the pursuit of new customers and retaining existing ones, an investment-rationale balance is required for the acquisition and retention of customers in target markets. Such balance transcends extant marketing paradigms such as, “the success rate of selling to a customer you already have is 60 to 70 per cent while the success rate of selling to a new customer is 5 to 20 per cent. Moreover, the acquiring of a new customer can cost five times more than retaining an existing customer. Thus, increasing customer retention by 5 per cent can increase profits from 25 to 95 per cent” Some marketing pundits may argue, the validity of “cost five times more” was based on mass-produced goods and business models focused on pushy sales tactics from a mass marketing approach. Other consumer marketing experts strive for a balance to reconcile acquisition and retention as an investment decision rather than a cost, suggesting adopting not a product but a consumer-centric orientation to turn the “sales pitch” into “customer engagement”.
A New Business Model: Consumer Centricity
Peter Fader in the consumer centricity playbook, reminds us about the absence of predictive analytics, machine learning, and artificial intelligence in the days of mass-marketing. Nowadays, most organizations emphasize data to drive business decisions but data alone should not be the goal. Facts and figures are meaningless if you cannot gain valuable insights that lead to more-informed actions. Conventional market research descriptive, prescriptive, diagnostic, and predictive roles have been enhanced with predictive analysis. An analysis supported by accurate educated guesses around future behavior from advances in machine learning and artificial intelligence.
Under current tech ecosystems going to market looks different these days. We operate in a VUCA (volatile, uncertain, complex and ambiguous) world-time where no one owns their customers. Moreover, competitors are colleagues and companies share intellectual property with other companies in order to co-build product solutions and reciprocal need-satisfaction; this partnership includes evangelized customers. The current selling ecosystem is much different than it was, and now we face a new selling approach where personalization can increase overall consumer spending up to 500 per cent.
Customer Lifetime Value
Peter Fader asserted that decisions about customer acquisitions, retention, and segmentation (targeting) development should not be driven by cost considerations but based on the future value of customer (CLV). A focus on the “cost five times more” obscures connecting with customers now and delivering value as engaging pillars to increase customer lifetime value (CLV) and business sustainability. The latter is a leading organizational goal over profit maximization and goes along with the triple bottom line: people, planet, and profit AKA a sustainability-based accounting method. Hence, successful companies must find a balance between investments in acquisition and retention. Knowing how much your customer is worth can help make smarter and more accurate investments for new and existing customers and relationship marketing efforts. After all, according to Peter Fader, customer centricity offers the possibility of long-term brand differentiation when competition intensifies and the pressure on prices increases. In short, customer centricity focuses on customer retention as well as on acquiring new customers and winning back (retargeting) those customers that have been lost.
Customer Management Tools
Information Technology (IT) is a customer centricity ally enabling all customer-centric processes. Some IT benefits are efficient paperless processes, workflows, central data storage, greater transparency, efficiency in all customer interactions, and a full customer history. One effective IT application for such benefits is found in a Customer Relationship Management (CRM) program. Analytical CRM involves analyzing customer and transaction data, extracting information from customer data, as well as data warehousing, and data mining. This “on-site” integration of all customer interactions could enable better customer segmentation, personalization, needs-based customer contact, and offerings, as well as improved after-sales service.
Social Communications for Conversion and Retention
Social media has changed everything for consumers and for businesses making decisions that fall somewhere between art and voodoo when trying to figure out where potential customers go to learn about a new product. Increasingly, the answer is Google, Twitter or Facebook — or all three depending on the product or service. Customers might also read reviews on Amazon or Angie’s List to see what other people think. Some potential customers may even visit recommended company websites via Word of Mouth (WOM) marketing.
Fortunately for businesses making social media decisions, there is a CRM social platform that provides analytic and decision support engines for managing the vast social media challenging media marketers. Social CRM platforms drive strategic decision-making and improve the effectiveness of social media for businesses. There are three key elements to a successful CRM initiative: people, process, and technology. However, to think about CRM in primarily technological terms is a mistake. The more useful way to think about CRM is as a process that will help bring together lots of pieces of information about customers, sales, and marketing effectiveness, responsiveness, and market trends. In short, CRM has evolved into a company-wide customer-centric philosophy designed to reduce costs and increase profitability by solidifying customer satisfaction, loyalty, and advocacy.
Traditional marketing campaigns communicate using one-way broadcast approach. TV commercials, print ads, press releases, radio spots, etc. They are all designed to talk to a wide swath of potential customers. Whereas, Social CRM helps businesses make customer engagement a two-way street. Social campaigns leverage existing communities of likeminded individuals or businesses and use social media to both expand and engage with those communities. The objective is to seek lead generation and sales conversions from an audience that is actively listening. Instead of a passive audience, customers become active participants in the story of a brand, and in turn, they get to appreciate brand value. These targeted communications are managed conversations and is a proven authentic way to convince potential customers that a product is popular, respected, and trustworthy.
Cost-Benefit Framework for Customer Acquisition (CA) vs. Customer Retention (CR)
CA and CR call to action (CTAs) is important for business sustainability and growth in their own way. In customer acquisition, businesses attract prospects to the business, and then persuade them to buy a product or service. The bottom line is to gain new customers, which trigger vanity metrics for marketers. Such metrics gain value when showing a customer base growth from results after a recent marketing campaign spending, that promises more selling opportunities. A focus on customer retention shows a process and the ability of a company to keep its customers over a longer period of time. The latter involves keeping customers active and as happy users of your product. A strong customer retention strategy enables businesses to maximize the lifetime value (LTV) of customers by encouraging them to bring their business back to you, again and again. This is customer advocacy or evangelism marketing; an advanced form of WOM marketing.
A customer's lifetime value (CLV) is the projected value of that customer over the entire course of a relationship with a company. Retention is a cost effective approach that offers a much higher ROI on advertising spend for certain business models, and is often much more cost-effective than growth by acquisition. Therein, the saying it may cost up to 5 times more to acquire a new customer than to keep an existing one. It takes time and money to interest new customers in a product and even more time and money to convince them to buy it.
However, many companies focus the majority of their time and resources on acquisition. Here are some arguments: First, short term results and acquisition campaigns offer quick and easy measurements of success. Second, the classic instant gratification still prevails in businesses whose sales performance is measured by quarterly revenue growth. And third, investors expect companies to keep growing over time.
Customer Centric Target Segmentation
Digitalization has transformed the connections between businesses and customers, thus increasing consumer's decision-making capacity and forcing companies to execute their activity by placing the clients at the center as in a customer-centricity model. Within this framework, segmenting is a necessary and indispensable process to develop strategies tailored to the needs, desires, and peculiarities of customers. A successful segmentation would lead to an improved customer experience (decreased churn), improved sales productivity (better return on compensation), and increased sales growth (new customers and segment penetration within existing customers).
In addition, segmenting means optimizing resources, since it contributes to stop making inconsistent or mistaken investments that do not provide any value to the user. Instead, it allows for allocating resources to strategies that really satisfy consumer’s needs and provide benefits. For all these reasons, segmenting contributes to strengthen the loyalty of our clients and without a doubt it is beneficial for both the company and the end-user.
The customer centricity business model formulates targeting customer by using a new segmentation approach aimed to improve retention rates and develop longer-term relationships with customers. It involved scoring customers based on preliminary qualifications (e.g., customer’s annual spend), adding additional opportunity criteria to refine the segmentation model, developing a formalized annual segmentation model review, and implementing new sales initiatives. A customer centric approach encroach tailored solutions to customer needs. Transitioning to a customer-centric model would result in more cross-sell and up-sell opportunities than a product-centric alternative.
It is essential to carry out a data integration process that allows us to have all the information in situ, integrated and united to analyze (data analysis) and complete it. Suitable Information Technology (IT) can be found integrating the analytical tools mentioned in this content, CLV, CRM, even WOM complemented by market research descriptive, prescriptive, diagnostic, and predictive roles when enhanced with predictive analysis. Analysis supported by advances in machine learning (ML) and AI. This practice would serve to understand different types of clients and orient call to action (CTA) for each one of them. In addition, it would help to position the client in the center since the process involves listening, classifying, and adapting business strategies to the client needs.
Every business should focus on both acquisition and retention at the same time. Subscription business may prefer retention but growth may come faster from acquisition efforts. Ultimately, in order to successfully grow your business, you must acquire a steady stream of new customers without losing existing ones. To achieve such goal, a customer centricity model could contribute to successful customer acquisitions, retention, and segmentation not driven by cost considerations but based on the future value of customer.
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