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retention marketing

What is Retention Marketing and Why do You Need It?

An updated version of this article can be found here.

You put resources into attracting online shoppers to become visitors of your site and then into converting them. Once they make a purchase you have achieved your goal. Now you need to do the same with different online shoppers – spend those resources and go through the same process again. Or wait – is there another option? that leads to the question, what is Retention Marketing

Yes! You could convince the same shoppers that have converted to convert again. And guess what – it is more efficient and effective than to convince new shoppers (quicker, easier and less resourceful).

This is called retention marketing – the marketing strategy which focuses on the existing customer base, with the aim of making them repeat customers as much as possible by keeping them happy.

This strategy aims to nurture existing customers throughout their lifetime to ensure they are engaged, satisfied, have a relationship with the company and are loyal. These ensure predictable future spending (security) and higher profitability in the long run.

The success of this strategy is measured with customer retention rate.


What does customer retention mean?

Customer retention is the desired result of retention marketing – keeping customers happy, satisfied and loyal that they continue being your customers and re-purchasing from you.

This is calculated with customer retention rate, which represents the percentage of retained customers you have gained during a certain time period.

The formula, according to Inc., is customer retention rate = ((CE-CN)/CS) * 100, where:

– CE= number of customers at end period

– CN= number of new customers during period

– CS= number of customers at start of period

The higher your customer retention rate is, the more successful you are in your retainment strategies, the more customers are loyal and make repeat purchases and the more benefits you reap.

According to Client Heartbeat, what is considered a good rate depends on the industry. However, most companies set the target to 90% and higher.


Why do you need to start focusing on retention marketing?

Retention marketing is very profitable as retained customers are very powerful. According to Gartner Group, 80% of a company’s future revenue will come from 20% of their existing customers.

Bain & Co. research found that a 5% increase in customer retention can increase profitability by 75%. Additionally, according to Forbes research, brands that spent more on retention marketing in the past 1-3 years, had a 200% higher chance of growing their market share.

Why is it so profitable? Let’s break it down…

1. Existing customers are easier to sell to

Customers who have converted and were satisfied already know and trust your brand to be credible and of desired value. Thanks to the relationship and loyalty, you do not need to do as much to attract and educate them as you need for a new customer. They will come to you willingly, without much convincing.

Additionally, due to familiarity with your company, existing customers are more open to upselling and cross-selling efforts, and due to loyalty, they are more resistant to competitors’ sales efforts.

On top of that, you are able to use the customers’ past experiences with the site to send personalized, relevant messages and convince them more effectively. This you are unable to do with new customers.

Therefore, it is 50% easier to sell to existing customers than to new ones. Consequently, existing customers are 9 times more likely to convert than a new shopper.

2. Existing customers spend more

In fact an average of 33% more than new customers. Furthermore, they are less price sensitive, because they are aware of the value of your products or services.

Therefore, with each repeat purchase, the average order value and thus profitability is higher. This results in increasing conversion rates over time.

3. Existing customers are useful

If your existing customers are satisfied and loyal, they often become advocates and increase your customer acquisition without any marketing efforts on your part. Customers’ advocacy is extremely important as it presents social proof for your company. It is often more effective than any of your own marketing campaigns, as shoppers are viewed as unbiased.

Furthermore, you can also use existing customers to improve your company, as loyal customers are often more open to providing feedback.

4. It costs less to retain than to acquire customers

According to Harvard Business Review, it is 5-25 times more expensive to acquire a new customer than to retain an existing one. According to Martech, it is 16 times more expensive to bring a new customer to the same level of profitability of an old one. Furthermore, an increase in customer retention of 2% can lower costs by as much as 10%.

Why is it less expensive to retain than to acquire?

Firstly, according to AdAge, acquisition has become more expensive than it used to be. Secondly, in general, keeping existing customers is cheaper than acquiring new ones. This is because your existing customers are already familiar with your business. Consequently, there is no need to convince them of your worth and educate them, just to remind them of your existence and attract them to products.



So as a result….

Retained customers have higher ROI:

Since retained customers are more likely to purchase again and have higher order value, as well as bring in more customers – they generate higher revenue than new customers.

Since you need less resources to convince them to make another purchase, they are less costly than new customers.

Because they bring more revenue and cost less, retained customers generate higher ROI.

Retained customers have higher long term profitability:

Customer lifetime value (CLV) is the predicted profit from a customer during the entire lifetime of their relationship with the company. It is the product of purchase frequency and repeat purchase rate.

Since those two metrics are higher for retained customers than new customers, retained customers have higher CLV. A higher CLV means every customer you acquire will be more valuable, which leads to long term profitability. This ensures predictable revenue and stability.


How can you implement it?

There are many manners in which a company can nurture their existing customers, but in the core of each technique is the continuous messaging and engaging with the customers to create and maintain the brand’s value and a personal, loyal relationship.

Remember while you implement such techniques to consistently monitor your customer retention rate, in order to observe the effect of your strategies.



What is the meaning of customer loyalty?
Customer loyalty is the is the preference and affinity of one company over others, resulting in repeat purchase for a long time period.

What is the meaning of customer defection (a.k.a attrition, churn, turnover)?
Customer defection is the loss of customers.

What do you mean by customer retention?
Customer retention is the ability of a company to keep customers loyal and repurchasing for a long time period.

What is retention rate in business?
Retention rate represents the percentage of retained customers a company has gained during a certain time period.

What is a good customer retention rate?
According to Client Heartbeat, what is considered a good rate depends on the industry. However, most companies set a target to 90% and higher.

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