Business marketers need to pay attention to retention marketing. The consumer world is way ahead of you with value-based, data-driven segmentation and frequency-point programs of all kinds.
But because it’s rare, the upside potential is great for business-to-business. You can get a lot of competitive benefit if you move quickly.
Philosophically, business marketers are already ahead of the retention curve. They tend to have small universes to play in, so they instinctively know they have to focus on satisfying their customer base. It’s the way any good salesman would manage his territory. Business-to-business direct marketing does nothing more than replicate the time-honored approaches of a salesman – just more efficiently.
So how do you nurture your best customers? The same way a salesman would. You get to know them and their needs. You make them feel good about doing business with you. You spend time and money on them according to what they are worth to you – like you play golf with the big accounts. You sell to them the way they want to buy. You watch your competitor and make sure you are providing at least as much value as he is.
But let’s back up a step. How do you decide who is your best customer? Most direct marketers rely on recency/frequency/monetary value to segment customers by value. RFM is a great tool for analyzing customers by their past behavior.
But RFM isn’t the whole story. To evaluate “bestness,” RFM analysis can be a misleading indicator for two reasons. First, a customer who has bought a lot from you, however often, is not necessarily loyal. For a better price, better quality and better delivery terms, he may drop off without giving you a chance to respond. Second, just by looking at his value doesn’t say much of anything about his total value – about your share of his budget. He may be spending just a little with you, but a lot with the bad guys. To supplement RFM, you must focus on wallet share.
Once you’ve identified your best customers, select the right approach to retention marketing. Here are some options:
• Differentiated coverage. After you’ve analyzed your customers’ value (or their potential value), invest more in covering the high-value accounts. Treat them better. Assign your best salespeople to them. Give them the best volume discounts, the lunches, golf and seminar invitations.
As for your lower-value accounts, you can cover them more cheaply. They might get a telesales rep or a distributor. Or you might send them a catalog and ask them to phone in their orders when they are ready to buy.
Differentiating your customers by value makes natural economic sense on a return-on-investment basis, and it also makes retention sense: You are truly nurturing your best customers.
• Triggered after-marketing programs. Create an after-market relationship management program that is customized to what is going on in the account and tries to be optimally relevant to the buyer.
• Loyalty programs. Taking a page from the consumer loyalty business, a number of businesses have successfully fenced off their best accounts and put in place a special program to recognize and reward them. These programs can be productive, but, if not designed properly, they can also be wasteful.
Investment Trade-Off: Acquire or Retain
Business-to-business marketers frequently forget to make a clear distinction between investments in customer acquisition vs. customer retention. The way you talk to a current customer is different – or it ought to be different – from talking to prospects. The more basic question is: How much of your budget do you concentrate on retention vs. new customer acquisition?
We all know that customers cost a lot more to acquire than to keep. The best way to allocate the marketing mix is to analyze where you are in the product life cycle and the size of your universe of potential customers. For a mature company like IBM, whose large enterprise customers have been buying from it for years, there aren’t many new customers coming along. The key for IBM is to get as much of its current customers’ IT budgets as possible: classic retention marketing. But if you are in a growing marketplace, you will need to focus on both acquisition and retention.
The question then becomes how do I divide up my marketing investments between these two? The right approach is to ask yourself: If I have only one additional marketing dollar to invest, where should I put it to get the most bang? This is the right question, but it’s hard to answer in our complex BTB lives. What most marketers will end up doing is analyzing each approach on its own merits and then going with their guts.
So how do you analyze the effectiveness of acquisition vs. retention marketing programs? The metrics are different. For customer acquisition, the most effective is the return on marketing investment over the profitable life of your relationship with the customer. It’s pretty easy to calculate a present value of future cash flows from the new customer based on some educated assumptions and then decide how much you can invest to acquire the account.
On the retention side, marketers should use the metrics identified by Earl Sasser of Harvard Business School: “Measure your program’s impact on getting customers to buy more, stay longer and refer new business to you.” This is possible with control groups or annual comparison studies.
Finally, don’t forget to reactivate your dormant customers, who often fall by the wayside because of lack of attention. On the value scale, these are the folks you should focus on second, just after your current customers. You need to find out why they aren’t buying from you today; and, if they do represent a profitable opportunity to you, get them back.
Ruth P. Stevens is senior vice president of direct marketing at Cybuy, New York. Her e-mail address is [email protected]