Tucker Matheson is a co-founder and Managing Partner at Markacy, a digital marketing strategy firm headquartered in New York City.
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It's hard to get through a business day without hearing poor economic news and forecasts of rising inflation, interest rates, energy costs and an impending recession in 2023. According to a 2022 McKinsey & Company survey, consumers are feeling twice as pessimistic about the economy as they've been throughout the pandemic.
In response, many brands are evaluating what this change in consumer sentiment will mean for their business models, revenue and overall growth strategies. However, is planning for another Great Recession the best strategy based on history?
According to historical economic data, if you only consider the post-World War II period, the average U.S. recession has only lasted about 10 months. With that in mind, brands that have sound business models should view tough times as an opportunity to come out stronger than before.
One area I think all brands should be focused on in 2023 is customer retention. New customer acquisition often requires more capital investment and resources than getting an existing customer to make repeat purchases. One study found that loyal customers account for nearly 60% of direct-to-consumer sales, and other research has shown that increasing customer retention rates by only 5% increases profits by 25% to 95%.
Additionally, customer retention can help support sales and profitability immediately and in the long term. Once a robust program is set up, it requires minimal resources and investment to maintain.
So how can you get started on building your retention strategy in 2023? Keep reading.
Digging Into The Data
A good customer retention program starts by understanding your customer and product data across the entire funnel, from acquisition to retention. Connect perspectives and data points from your media, customer relationship management platform, web, retail and other analytics to paint a full picture of customer behavior.
Analyze your core acquisition analytics and customer interactions to understand how new customers are converting and what gateway products and services they purchase. Tweak your top-of-funnel advertising creative, messaging and targeting based on this data to optimize acquisition effectiveness.
What do you do after a customer makes an initial purchase, though? This is where it's crucial to analyze CRM, web and purchase data to understand different trends, such as:
• The average number of units new customers purchase in the first 12 months.
• The average value of new customer purchases in their first 12 months.
• The average length between the first and second purchase.
• Second purchase trends from customers who initially acquire gateway or best-selling products.
• Second purchase trends from customers who purchase different product lines.
• Seasonal product trends and purchases.
Having this data enables you to make informed decisions about how to structure your customer retention programs in a personalized way.
Retention Program Implementation
Be sure to tailor your retention program to your brand's specific business model and customer touchpoints. For example, some brands have a retail customer experience, some brands leverage apps for customer communications as part of their service and others have in-person sales teams, all of which you should consider.
Map out potential customer post-purchase scenarios and interactions across channels within the next 12 months that are designed to drive repeat purchases and other loyalty actions. Once you've mapped out and documented a strategy, you can start implementing the intended communications across various touchpoints.
CRM platforms are a vital component of a good retention program. Develop your email and text message customer journey automation based on the retention data gathered:
• Post-purchase: Personalize communications sent immediately after their first purchase, and introduce them to more of the brand and products. The main goal is to get the customer to take a specific action, such as making a repeat purchase, leaving a review or referring another customer.
• Timing: Tailor communication timing around the average length of time between the first and second purchase to accelerate this metric. Providing a thank-you incentive or repeat purchase discount in the first 30 to 60 days can be highly effective.
• Anniversaries and birthdays: Personalized communications and incentives around these highly personal dates are great prompts to drive repeat purchases.
• Loyalty programs: Often one of the best retention tools, loyalty programs help customers perceive a high value for their money and make them feel they are part of an exclusive community. Define these programs carefully based on data and ensure that they have differentiated incentives tied to customer lifetime value.
Brands that create the most value for their customers post-purchase are more likely to reap the benefits of customer loyalty and higher customer lifetime value.
What Gets Measured Gets Improved
Management theorist Peter Drucker reportedly said, "You can't improve what you don't measure." Once you've set up your customer retention strategy, define specific key performance indicators to measure the success of the overall program.
Some of these metrics typically include the following:
• The percentage of customers who make repeat purchases within 12 months.
• The time between the first and second purchase.
• The number of units purchased in the first 12 months.
• The average lifetime value of new customers in the first 12 months.
• The number of new customers signing up for loyalty programs.
• For subscription brands, you may want to see customer retention in newer monthly cohorts increasing versus prior months.
• The revenue coming from post-purchase email/text message automation flows.
Make sure your KPIs are brand-specific and based on measuring the specific actions your customer retention program is aimed at influencing and improving. Measurement helps you continually optimize your program over time based on new data and customer feedback.
Understanding how customer lifetime value is growing from your program also enables you to evaluate your permissible customer acquisition costs, which can increase in tandem over time.
While macroeconomic factors have changed, brands with sound business models still need to grow, not just plan for the short-term timeline of a potential recession. Customer retention programs have a proven return on investment, so add them to the top of your list of 2023 priorities as a recession-proof strategy.
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