It is easier and far more profitable to retain an existing customer versus trying to convert a new one. Yet the majority of customer related digital marketing dollars are spent on conversion (i.e. sales). Ad-based search revenues have long been the foundation of Googles $450+ billion market cap and Facebook’s mobile ad revenues represent nearly three quarters of total sales and over 90 percent of revenue growth. Whether it’s Trip Advisor, Yelp or Twitter, the underlying business model combines advertising spending from businesses trying to convert prospects with a useful consumer function.
A core enabler of all these successful companies is the unique capability of digital to reach a target demographic. When consumers have a custom screen and an identifiable profile, it becomes possible to tailor and target ads economically to specific groups. This same principle only applied on an individual, versus group, basis will transform customer retention strategies and the larger digital landscape.
The reason I believe retention is about to change everything is not just that existing customers are typically far more profitable. It is also because delighting existing customers will eventually become required to convert new ones. Put another way, retention will confer a two-for-one benefit in a networked world where reality trumps perception and consumers are armed with more and more tools to discover what others really think. The arbiters of “truth” will become authentic repeat customers, not unsupported ads. Consumers will particularly value advice sourced within their own networks on which products and services they should purchase. These networks are likely populated with pods of peers representing the highest value targets for any given business. The executive who loves her NetJets fractional share is the best potential marketer for that company imaginable.
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