Customer retention is the most treasured metric (“MTM” — just kidding) of relationship marketing. After all, a loyal customer represents an annuity stream of revenue at a lower cost of sales than any other customer. In addition, as Fred Reichheld wrote in his book The Loyalty Effect, loyal customers tend to be related to loyal employees, lower returns, lower customer service expense and so on. Net of everything — loyal customers are a VERY good thing.
Yet, in measuring retention, as in many things, the “devil is in the details.” Retention is usually defined as the percent of this year’s customers who also purchased in the prior year. Traditionally, Marketing uses this metric to gauge the impact of all relationship marketing efforts (as well as customer experience) in motivating customers to maintain a relationship over time.
But what if you want to identify the impact of specific salespeople, customer service agents and marketing programs on building long term customer relationships?
How do you identify what contributed to a customer’s extended relationship?
There is a low-tech way to address this challenge, and a more sophisticated approach. The path you take has to do with the “analytical maturity” of your organization — will your company accept and act on statistics-driven conclusions or should you focus on easy-to-understand calculations that can be done on a calculator (do those things still exist?).
There is no right answer. There is only the answer that will be the most successful in gaining broad-scale acceptance in your company.
Here are some more details about each of these approaches:
- Low tech– Make sure that you set up control groups for each one of your marketing programs. When you read the results of those programs compared to the control group in terms of retention, you will clearly see which programs do the most to help build a relationship with customers that extends over time. To understand the impact of an individual sales person or customer-service agent, a cross-tab analysis can be conducted to identify the best and the worst performing staff. You may not see the small differences between two similarly performing agents, but you will find the best and the worst. Then you can head off the worst and interview the best to bring Best Practices to the rest of the team. Not precise, but you get a lot of value quickly.
- More sophisticated– More advanced statistical modeling will permit you to identify the ideal combination of marketing programs and staff to maximize customer retention and customer long-term profitability (which are not always the same).
With either of these approaches, it is important to recognize that “one size does not fit all”. Different customer segments will respond differently to the same marketing effort, and is important to understand the impact of your marketing efforts on retention for your Best and High Potential customers. Those are the customers who mean the most to your business (the 20% that can represent between 60-80% of revenue and even a higher percentage of profit).
As a marketer who “wants to get things done,” it is important to make sure that you do not fall in love with modeling as the next “shiny new thing,” if that approach will not fly with senior management. The goal is to succeed, not to show you are smart (they already know that). So if senior management needs basic tables and charts to quickly assimilate the information and give you their approach — then do it. You need to develop learnings, gain acceptance and move to improve performance as quick as you can do it– this economy waits for no one!
How do you measure customer retention in your company? Which approaches have gained more acceptance with senior management?
