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Why customer lifecycle marketing is important
Whatever type of customers your brand attracts, they all have a life-cycle. If you are a bank, your customers begin their lifecycle with you when they open their pocket money account and progressively move up to a mortgage and pension.
Companies should ideally create products which specifically cater to their customers’ needs according to where they are in their lifecycle. Customer lifecycle marketing maximises customer retention and allows brands to offer a more relevant product as their customer’s needs change over time. Car brands do this by offering the ‘starter car’ for people in their 20’s and the ‘family saloon’ in their 30’s and the ‘sports model’ for their more affluent or mature customers.
Let’s take a look at this in more detail and find out exactly how brands can use customer lifecycle marketing to retain their customers… for life!
Customer retention and loyalty – the vital ingredients to increase customer profitability
- Launching customer retention initiatives decreases churn
Reducing churn rate is a key driver of success and brands that are focused on retention experience far less customer attrition. If your focus is on customer acquisition with little to no focus on retention, your churn rate is likely to increase. Customers need to be looked after and cared for or they will find a competing brand that does! A retention-based strategy will reduce churn in the long term, resulting in an increase in profitability and market share. Customer lifecylcle marketing is one of the strongest strategies you can use to retain a customer.
When customers are loyal and they like you, they spend more, resulting in an increase in customer profitability. This is where providing great customer service comes into its own. Numerous studies have proven that customers spend more with brands that that look after them well. Generally, the longer the customer relationship lasts, the more they will spend per transaction.
- Some loyal Customers spend WAY more over their lifetime as a customer
If we look at the customer life-time i.e. a value attributed to the amount of time spent with the company, focusing on retention increases this lifetime leading to a higher value. According to a 2012 report by Adobe – The ROI from Marketing to Existing Online Customers, “10% of loyal customers are spending 3x more per order than the average customer. Additionally, the top 1% is spending 5x more per order.” These makes existing customers a great opportunity to drive business profitability and growth. The Pareto principle (also known as the 80/20 rule) states that approximately 80% of a business’s revenue comes from 20% of it’s (most loyal) customers. Keeping these top customers happy is absolutely vital.
- Retention Increases Profitability
Focusing on retention also increases profitability and there are three main reasons for this; a retention-based strategy controls fixed costs; loyal customers use word-of-mouth to increase your customer acquisition rate organically and; it’s much easier to up-sell to loyal customers than new ones.
- Focusing on Retention Keeps Your Fixed Costs in Check
Of course, keeping your fixed costs in check is crucial and, a retention-focused strategy does this. If you are trying to grow fast and are making significant investments in sales and marketing, overheads will dramatically increase. It is a lower risk strategy to match the growth of the business’s overheads to customer retention rates. If you are a new business trying to scale before you have achieved a reasonable level of customer retention, it is highly likely that you will be spending more than you are earning which is not sustainable in the long term. Growing at a pace that matches your customer retention rate will reduce dependency on investment capital and will also help to increase the business’s valuation.
- Upselling to Loyal Customers Is Much Easier Than to New Customers
As you may expect, upselling to loyal customers is less complex than doing so with newly acquired customers. Whilst upselling to new customers is a good way of increasing profits (Amazon have stated that it accounts for 30% of their revenue), doing a hard pushy sell can leave new customers with negative brand sentiment.
Interestingly, upselling tactics are reported by Paul Farris, Author of Marketing Metrics to succeed 60%-70% of the time when targeted at loyal customers but this drops to 5%-20% for new customers.
Benefits of converting a one-time buyer into a lifetime buyer through customer lifecycle marketing
When you convert a one-off buyer into a regular life-time customer, several things happen:
- Sales increase – customers are far more likely to want to buy from you in future.
- You make a dent in the competition – Your market share increases in the long term as you retain customers beyond the short term transaction.
- Margins shoot up – According to the B2B Customer Experience Priorities In An Economic Downturn: Key Customer Usability Initiatives In A Soft Economy,” Forrester Research, 2008, “Acquiring a new customer can cost five times more than retaining an existing customer. By focusing on retaining existing customers, you are spending less on marketing.
- Even greater margins – loyal customers do not mind paying a little more for great service.
- Growth is far more organic – selling more to people who like you is easier and loyal customers become brand advocates which drive organic customer referrals.
- You love your work – selling to people who like you rather than having to push your offerings hard is always nicer!
- Employees love their work too – customer service becomes more of a business focus and therefore more capable – customer service enjoy their work more because customers are happier!
- Less stress – Having a strong er customer service function results in fewer complaints and less stress!
- Good will increases – a fantastic asset for any company to build over time with customers who will be more forgiving if the brand slips up and makes a mistake.
How brands can target customers to run customer lifecycle marketing programmes
How to Identify and target life-cycle stages
Customer life-cycle stages can be hard to determine – you need to identify the lifecycle stages and decode the key indicators that mark a customer as moving into the next stage of their life-cycle. Customer surveys can help with this and are a fantastic tool to unlock the code to more effectively launch a customer lifecycle marketing programme.
Once a brand has clearly identified it’s customer’s life-cycle stages, they can match this against their existing customer’s transaction data and how the customer is engaging with the brand to identify where each individual customer is within their life-cycle.
This enables brands to accurately segment their customers by life-cycle stage in order to deliver more meaningful marketing and sales promotions that accurately reflect their needs (promoting a pension plan to someone in their late 20’s works better than promoting it to somebody who has recently retired!).
6 Tips to create a customer for life with customer lifecycle marketing
Identify coverage gaps – If you know that a customer has recently entered a new life-cycle stage, your next promotion to them can be for the most relevant product or service that meets their exact need just as they are starting to consider purchasing.
Evaluate Expansion Opportunities – are there other products or services that you can offer that the customer will be looking for based on their life-cycle stage? Brands can significantly increase their customer’s lifetime value by offering additional products or services that meet the customer’s exact needs for their life-cycle stage.
Know when to re-engage – In some cases, it may be appropriate to not engage a customer with marketing and sales collateral for a period of time. By reengaging customers at precisely the right time, they will appreciate the brand’s timely communications that are not overly persistent. A customer who has recently purchased a ‘family car’ will not want to hear about upgrading to a sports car for quite some time!
Develop a strong customer community – turn transactions into community-based experiences and engage with customers socially (online or at events). Engaging them in an informal way will give more honest feedback and insight about their life-cycle and customer experience with the brand.
Understand the value of the customer life cycle – engaging with buyers during changes in their life builds added loyalty as you can play an active role in major events such as them moving house or starting a family.
Personalise the customer experience – show that you care and be genuine about it. Make your communications personal and as bespoke as possible, matching to the needs of the customer’s life-cycle stage.