We’ve all heard it before. It cost more to acquire new customers then it does to retain existing ones. While I truly believe this, I also believe how you acquire new customers impacts the quality of your engagement and retention program, as well as churn rate.
I’ve been working in member engagement and lifecycle for the past few years and the main thing I have learned is that engagement, retention and acquisition go hand in hand. Let me explain how.
You can only generate revenue from existing customers if they had a genuine interest in your product or joining your database
Surely everyone who is attracted to your acquisition campaign had a genuine interest in your product right? Not always.
Marketing departments that divide engagement and acquisition teams are driven by different incentives. Acquisition managers are tasked with getting the numbers of customers in their database up. They don’t care how they engage later on. Their job is to get the customers into the database, using whatever incentives or strategies that work. This sounds like a great strategy because anyone in business knows it’s a numbers game. The more customers in your database, the more chances to sell right? Again, not always.
What’s the problem with this strategy? I have worked with so many businesses, marketers and CEOs who don’t see the problem with their number focused acquisition targets. They applaud marketing managers who can raise their database numbers to new heights. After all it sounds impressive to say you have 100,000 members in your database. However, when we focus on just the numbers (driving customer database size up) we lose track of quality leads.
Member engagement managers are tasked to activate leads into high spending customers. Sounds easy enough, but it doesn’t work if the customer did not have a genuine interest in your product, or becoming a member, in the first place. That is, they exchanged their data because of the incentive, not because they had intent to purchase from you again or liked your brand. Your engagement and retention strategy will become ultimately hopeless among customers who were incentive driven.
How an acquisition strategy can work against your business objectives
I worked with a retailer who offered 10% off a purchase (promoted at POS) if the customer handed over their email address and opted in to receiving weekly email marketing communications from the business.
90% of their customers took up the offer. Why wouldn’t they? There is no validation process to check if the email address supplied is real and it’s an extra discount on a product the customer was already going to purchase.
The acquisition strategy to grow their database worked. Customers were handing over data to access the discount. The problem was that the data was useless. Majority of the customer data was fake or irrelevant otherwise, the customers were tourist who didn’t live in the country, so they would never come back to the store to complete a second purchase regardless of how many emails we sent them. On top of this, as we saw the database grow, we also saw the percentage of engaged members drop. This was because the QTY of engaged members remained relatively the same while the database was growing with a larger number of disengaged members.
What was the data telling us? Our acquisition strategy was costing us more money then it was making us money. We couldn’t drive engagement and we were giving away a discount on a purchase the customer was already going to make.
How to tie together an acquisition and engagement strategy
Since acquisition is a costly marketing activity, you need to make it work. Driving quality leads is the only way to get bang for your buck. When leadgen companies approach me (or anyone who is trying to sell a placement/buy in to their database) I don’t care how many people are in their database. What I care about is how they acquired those customers, what the customers are interested in and if I can make them long term buyers of my product. Many large distribution lists have been gathered by competitions or freebies. This means their database if full of members that are only looking for one off deals or free products. They won’t purchase unless they have a deal, which makes them non-loyal customers and their lifetime value to the business minimal.
If your business is centered around sales and deals, these are your ideal customers. But if you plan on building a brand loyal database, you need to hunt where your fish are.
Here are a few things you can do, to ensure your customer acquisition will create long term engaged customers:
- Don’t offer a discount upfront in exchange for an email address. Offer it on their second purchase. Those who don’t intend to return to your store will not provide an email address. Which saves you money and cleans your database.
- Sell a benefit of being a member and reward loyalty. Make your members earn their member discount. For example, for every $100 spent, send them a $10 voucher. Or tell them they will get access to member only sales/new products before the rest of the market.
- If you are running an competition to drive your database numbers, make the prize relevant to your target audience and business. For example, if you are a business consultant, offer a year of free consulting instead of a holiday for the winner.
- Look at where your most engaged customers came from. How did they enter your database? what are they most interested in? find acquisition channels that correlate with the characteristics of your most engaged customers.
- Watch and track the engagement of your new acquisitions. How long does it take for them to make a purchase? what about the second purchase? If that acquisition channel didn’t work, don’t go back there.
The bottom line is, make sure you are tracking acquisition incentives and campaigns with ongoing engagement and retention. If the acquisition strategy is driving one off sales, or non-engaged members, switch strategies. You can’t retain a customer you never had. Retention only works if you had a customer who was brand loyal, but then has become dissatisfied with your brand or product.