• by Jack Loechner , Staff Writer, April 4, 2012

According to a recent survey of marketing executives by Loyalty 360, although marketers know they need to focus better on customer retention, they aren’t doing it.

To get a clearer picture of where marketers are and where they need to be going, Acxiom/Loyalty 360 took a closer look at the customer retention strategies companies are using, singling out the role that data and analytics play in these customer retention initiatives. Executives in both B2B and B2C companies from a cross section of industries take a deeper dive into these strategies and gauge how brands are using customer data.

Customer retention has become a major focus for businesses, yet, loyalty as a concept, is vague, says the report. The study pursues a number of channels and verticals within the market to define what “customer retention” means. Does it mean that a customer repurchases? Does it mean that a customer interacts with your brand on social media? Where does advocacy fit into the picture?

The days when marketers directed the one-way delivery of information (what’s referred to as a traditional “push” marketing strategy) are long gone, says the report. Given the explosion of social media and the immediate availability of information, customers are now in the driver’s seat. Consumers, not brands, choose when, where, how and if they engage with a brand. As a result, virtually all metrics, including esteem and loyalty, are in serious decline.

Issues highlighted in the study completed in February 2012, along with key findings, include:

• 84.5% of respondents)use customer retention marketing strategies; 48.8%)believe their strategies are working 
• 49.6% know their best, most loyal customers.
• 70% admit less than 20% of their employees focus on retention while 60% spend less than 20% of their marketing budget on retention 
• 57.4% will increase retention marketing spend over the next two years
• 63.0% evaluate their customer retention efforts on a monthly basis; 51.1% evaluate quarterly and 45.7% annually. 5.4% do not evaluate their customer retention efforts at all
• Rewards programs (65.2%), social media (65.2%), and 1:1 marketing strategies (64.1%) are most often used for customer retention 
• RFM (recency, frequency, monetary value) and customer lifetime value are used most often to measure customer retention, with 64.1% and 51.1% respectively
• 40.2% of companies access data individually through different lines of business, while just 34.8% report their data is centrally located with universal access
• 80.4% of respondents collect data to evaluate program performance. Other reasons include campaign segmentation, and triggering one-to-one communications
• Marketers would like their analytics models to understand and improve customer attitudes/behavior (58.7%), brand affinity (45.7%), propensities (41.3%) and channel preferences (41.3%) 
• Respondents claim the most important outcomes of data insight are better understanding of customers’ attitudes and behavior (31.5%) and improving the customer experience (25.0%)

Bain Consulting found the average company loses 20-40% of its customers every year. Reducing customer attrition by a mere 5% can improve a business’s bottom line profits by 25-85%. Similarly, increasing customer loyalty by 1% is equivalent to reducing costs by 10%. The Center for Retail Management at Northwestern University concluded that 12-15% of a business’s most loyal customers contribute 55-70% of the company’s total sales.

Given these statistics, it’s not surprising that the vast majority of respondents use retention marketing strategies, but what is eye-opening, says the report, is that only less than half (48.8%) believe their strategies are working; 11.6% don’t believe they work at all, while 39.5% aren’t sure. 

The Accenture 2011 Global Consumer Research Study found that just one in four consumers feels ‘very loyal’ to their regular brands, while just as many profess no loyalty at all. This is not a surprise since most loyalty strategies are ineffectively designed and consumer participation in a brand’s loyalty program  does not necessarily guarantee retention.

While customer retention is a top concern for most organizations, the percentage of overall marketing budgets the respondents devote to customer  retention doesn’t mirror these priorities. 84.4% devote less than half of their overall marketing budget to customer retention, while 39.5% devote less than 10% of their marketing dollars to customer retention.

Given the commonly held belief, says the report, in the 80/20 rule that the top 20% of customers drive 80% of a brand’s sales and profits, learning that 60% of respondents dedicate less than 20% of their marketing budget to customer retention is alarming. However, nearly 6 in 10 respondents plan to increase their marketing retention budget over the next two years.

There are a number of key questions companies need to answer in order to create and implement effective customer retention strategies, opines the report.

Only 49.6% of respondents agreed with the statement “I know who my most loyal customers are, and I know the best way to reach out to them and get them to engage with my brand.” Only 10.1% strongly agreed.

• Stronglydisagree   8% 
• Disagree   11% 
• Neutral   32% 
• Agree   39% 
• Strongly agree   10%

When asked to name which metrics they use, survey respondents revealed they are based mostly on transactions, spending and tenure, and less on attitude, satisfaction and referral. 64.1% of the respondents report using RFM (recency, frequency, and monetary value)—extending the legacy of push-based marketing.

Digging deeper into the types of customer retention initiatives companies currently use, some interesting findings surfaced: 

• Rewards programs are the most often used customer retention initiatives, with 65.2% of respondents currently using them and another 8.7% planning to launch a rewards program
• With social media being used by 65.2% of respondents and an additional 23.9% of companies planning to add it to their retention initiatives, it will quickly surpass rewards schemes as the most often used program. 27% of businesses included in a recent Loyalty 360 poll said that social media marketing has been the most effective channel for customer retention 
• 1:1 Marketing is also one of the most widely used customer retention initiatives, with 64.1% of respondents currently implementing these programs. An additional 21.7% plan to launch 1:1 campaigns, catapulting this category ahead of rewards programs; 14.1% of respondents neither use 1:1 marketing programs now nor plan to do so

According to Forrester Research, notes the report, call center satisfaction correlates with three loyalty metrics: (1) consumers’ willingness to repurchase, (2) reluctance to switch, and (3) likelihood to recommend.

Given this strong relationship, the study found that 33.7% of respondents don’t nor plan to collect call center interaction data.In fact, only 40.2% of responding companies currently capture this information at all. 

Customer data is one of a company’s greatest assets. But, it’s what businesses do with the data they collect that helps them grow. Delving into the findings, says the report, reveals what marketers believe is the most important outcome that data insight provides to improve retention marketing: 

• Understanding customer’s attitude and behavior (31.5%) 
• Improving the customer experience (25.0%) 
• Enhancing/creating more relevant marketing messages (20.7%) 
• Anticipating customer needs (13.0%) 
• Personalizing retention program rewards and offers (8.7%)

The report concludes by suggesting that marketers need to view this process as a marathon rather than a sprint, and the best place to start is to focus on learning the most you can about your best, most loyal and profitable customers. The explosion of new digital tools and technologies has fundamentally shifted power from brands to consumers. Consumers have access to ever-growing volumes of information about products, prices, customer satisfaction, and availability. As a result, virtually all metrics, including loyalty, are in serious decline.

Harvesting data and gleaning it for true customer intelligence is the secret for driving the effectiveness of your customer retention strategies. As the top 20% of your customers drive 80% of sales, learning how best to understand and engage top tier customers is today’s most important competitive advantage.

The report quotes Peter Drucker as saying, “What’s measured, improves,” and Walt Disney suggesting to “Do what you do so well they want to come back and bring their friends.”

Following is a snapshot of respondents in the Acxiom/Loyalty study:

For more information about the study, and sign-in access to the free, complete PDF file, please visit here.