By Bill Clark, CEO, Spindle, Inc.
It used to be that the business battle cry for merchants was acquire, acquire, acquire. Merchant technology was engineered to be primarily transaction-based, focused essentially on a singular mission: enable merchants to support the payment preferences of as many customers as possible. Acquire new customers; accept their payments. This was the basic model. The thought process seemed to be that the more ways you allow consumers to pay, the less business you end up turning away. The logical result of this industry-wide objective was the creation of a rigid mentality firmly fixed on payments.
But in today’s fluid ecosystems, having too rigid a focus on anything can be detrimental. Merchants today must be more imaginative, creative, and open-minded to the sales and service possibilities that technology provides, including the ability to transform one-time shoppers into loyal return customers. As the old adage states, a bird in the hand is worth two in the bush — especially when hunting in that bush requires costly marketing. So, the business battle cry for merchants has taken on a whole new pitch. One must continue to consistently deploy new customer acquisition tactics, retention, retention, retention has become the new charge of the day.
Why Retention? Better ROI
You’ve heard the argument before, and you can’t argue with the math. Most marketing studies confirm that hunting for new customers — in other words, targeting, advertising, interacting, and converting — costs nine-to-ten times more than simply retaining existing customers. With such a compelling ROI model as this, it’s no wonder that customer top-of-mind initiatives like loyalty clubs, punch cards, and points programs were quickly added to the merchant business toolkit. In fact, more recent and industry-specific studies show that merchants now rank retention over acquisition as their number one business priority.
These findings have been validated by a number of market research firms. For instance, Rick Oglesby, highly respected senior analyst with the noted market research firm Aite Group, recently finished a study on the subject. Oglesby was surprised by the importance merchants are placing on retention programs. “While we had suspicions that loyalty and similar retention programs would carry more weight than in previous years, we had no idea that they are considered much more critical to the success of the business compared to traditional acquisition activities,” he said.
Merchants have certainly gotten the retention message, and merchant services acquirers will confirm that retention support is one of the first things customers inquire about when evaluating new providers. However, the advancement of technology has now presented a new wrinkle to the retention fabric: mobility. Without question, mobility has become the new cultural and communication focal point. Smartphones, tablets, and other mobile devices rule our society and have become devices we can’t live without. They have become the central and common hub to almost everything we do (including shopping), so it only makes sense that payment industry technologists would integrate customer retention programs onto their mobile-based platforms.
The problem is, not enough of such programs are being implemented these days, and most of the occasional mobility-based customer retention programs one does see being offered to merchants today are generally short sighted in strategy and scope. For example, it’s rare to see even the most basic punch-card-type transaction-based programs being created for mobile devices. This is unfortunate, because the power and technology exists to achieve not only this, but also so much more.
Macro-Marketing With Micro-Targeting
If most merchants — and merchant acquirers— understood how easy and cost-effective it is to implement truly robust retention programs delivered directly to their customers’ mobile devices, they would immediately see the business value and demand more functionality. Consumers rely more heavily on their mobile devices every day, so what could serve as a better repository and collection point for retention-based offers than those mobile devices? After all, this is the era of Big Data and analytics, which has the promise to enable merchants to do amazing feats of macro-marketing with astoundingly granular micro-targeting — making every message more relevant and compelling, not only to nearby communities, but also right down to the individual consumer.
The potential goes far beyond jumping on the mobile Groupon and Living Social bandwagons, which, no doubt, have proven to be effective tools in generating new business. But these services can also, sometimes erode profitability if participation thresholds aren’t met. Studies have shown that only 5 percent of Groupon users actually return again to purchase at full price. So, as event- and opportunity-driven strategies, Groupon and Living Social absolutely work. But they have not proven themselves broadly to be an effective method for customer retention.
Here is perhaps a better strategy to consider: What greater way to maximize income than with strategically priced offers that are relevant and persuasive to customers based on who they are, where they live, and what they prefer to purchase? Doesn’t that seem more effective and cost-efficient than simply offering deep discounts that rely on volume to be successful in the long run, especially when these offers can be pushed out to mobile devices? The point is this: established promotional programs like Groupon and Living Social are fine for a macro outreach, but today’s technology also allows for more specific micro-targeting, which allows for more effective prospect-qualifying and offer-shaping through more relevant retention strategies.
Mobile commerce continues to prove a compelling but complicated issue, often perceived as a dual-edge sword: Yes, it allows businesses to cast a wider net of potential customers. But marketers must realize that technology can also detach the consumer from and the tangible experience of in-person shopping — experiences that reinforce loyalty.
However, inarguably, mobility is the new paradigm. There is no denying the shift it is bringing to the point-of-sale. The opportunity now lies in merchants aligning themselves with innovative mobility-based platforms that have the vision, the resources, and the technologies to take customer retention programs to a whole new level.
Welcome to Retention Analytics
What’s the new charter? Retention analytics: getting beyond the purchase itself and mapping the purchasing patterns. Crunching the metrics to make calculated marketing projections based on actual and quantifiable customer data revealing who is more likely to purchase what goods and services — where, when and why. A simple punch card retention program, physical or electronic, can’t do that.
Imagine the possibilities: Launching season-, time-, and location-based campaigns on an autopilot basis understanding and capitalizing on the formerly unpredictable and uncontrollable ebbs and flows of customer activity. Studying average spends and ticket content to make intelligent forecasts about which ancillary products would make the most promising cross-sell or upsell offers. Identifying customers who have been dormant over predetermined periods of time and analyzing history to understand what would get them back into the store. Robust retention in the age of Big Data and analytics is so much more than just pushing out offers to provoke recurring business. This is about understanding your customers — their habits and lifestyles — from a 360 degree perspective.
For those protesting, “Sure, this sounds good enough, but it’s all blue-sky thinking: too complicated, too expensive, and much too time draining,” think again. With the right technology partner beside you, this is far easier to implement and manage than you might imagine. Any merchant with the most rudimentary understanding of technology — i.e., any merchant that can surf the Internet — already possesses the basic skills needed to deploy and maintain powerful analytics-driven customer retention programs. In fact, in most cases, once implemented, these sophisticated programs are designed to essentially manage themselves. Once several basic parameters and prompts are fed into the program, the software runs in the background, analyzing when to initiate preprogrammed actions when certain behavior thresholds are met.
Deploy And Enjoy Both Retention And Acquisition
The best part about implementing these robust retention programs is that they give you the best of both worlds: retention and acquisition. How? Because loyal customers are happy customers. It’s not rocket science. Customers who feel well serviced — and believe their merchants value them — also tend to be vocal customers, willingly sharing their positive experiences while spreading the news about the excellent offers they’ve received. That’s the kind of buzz that leads to building new business. Thus, Big Data and analytics-driven, mobility-based customer retention programs can also stimulate new customer acquisition, which allows merchants not only to retain the birds they have in their hands… but also go after the two in the bush.