How to retain customers Arthur Middleton Hughes VP Solutions Architect KnowledgeBase Marketing

1. How to retain customersArthur Middleton HughesVP Solutions ArchitectKnowledgeBase Marketing

2. A complete customer retention plan • Why customer retention is important • Methods of retention • Recruit right ones to start with • Communicate with them & reward them • Create segments • Predict attrition – Risk Revenue Matrix • Create a loyalty program • Sell them a second product • Get them to become multi-channel buyers • Evaluation of Retention Programs • Tests and Controls • Return on investment

3. Why retention is important • Long term loyal customers: • Buy more per year • Buy higher priced options • Buy more often • Are less price sensitive • Are less costly to serve • Are more loyal • Have a higher lifetime value

4. Retention is the way to measure loyalty

5. Retention pays better than acquisition. $100 spent returns:

6. Basic Retention Strategy Rule:Put yourself in customer shoes • Say: “What would I want to be on this database? What’s in it for me?” • If you can’t come up with a good answer, the database will fail

7. Methods of Retention • Recruit right ones to start with • Communicate with them & Reward them • Create segments • Predict attrition – Risk Revenue Matrix • Create a loyalty program

8. Who are likely to be loyal? • Reichheld points out that • Some customers are loyal – others not • Begin by recruiting the right ones • One insurance company found that disloyal customers were: • Transient individuals • Young people, rather than older people • Single people, rather than married people • Renters, rather than homeowners. • People who respond to low-ball discount offers • People who respond to temporary sales

9. Recruit relationship buyers • Transaction buyers only interest is price • Relationship buyers want a firm that gives good service to whom they can be loyal

10. How to find relationship buyers • Lowball offers will attract transaction buyers • You cannot make a profit from them • Relationship buyers are interested in good service, high value and two way loyalty • They will stick with you and provide a profitable bottom line

11. Methods of Retention • Recruit right ones to start with • Communicate with them & reward them • Create segments • Predict attrition- Risk Revenue Matrix • Create a loyalty program

12. has a one-to-one customer communications program. • Results: Retention goes up 5.6 points • Travelers gains $14,000 per year per agent • Agents gain $2,380 per year

13. The annual program • Letter 60 days before annual renewal • Annual review • Thank you card in 1st quarter • Cross sell postcard in 2nd quarter • Newsletter in 3rd quarter • Seasonal card in 4th quarter

14. The value of a conversation with insurance customers • 62% of customers who leave, never talk to an agent first • 80% of people who talk to an agent do not leave.

15. Restaurant chain sent $5 reward cards to 4,000 lapsed customers • Average member visits went from 25 per day before the promotion, to 42 per day. • Average visits per card went from 1.18 before to 1.26 during and 1.22 after the promotion. • Incremental sales were $17,100 during the promotion and $4,700 in the 35 days after the promotion was over. • Communications increased sales and retention.

16. Methods of Retention • Recruit right ones to start with • Communicate with them & reward them • Create segments • Predict attrition – Risk Revenue Matrix • Create a loyalty program

17. Creating customer segments- Many are unprofitable This 28% lost 22% of the bank’s profits! Bank Customers by Profitability

18. Spend Service Dollars Here • GOLD Your Best Customers - 80% of Revenue Spend Marketing Dollars Here Your Best Hope for New Gold Customers Move Up 1% of Total Revenue Reactivate or Archive These may be losers Marketing to Customer Segments

19. A ideal segment: • Has definable characteristics • Is large enough to justify a custom marketing strategy with appropriate rewards and budget • Has members who can be motivated • Makes efficient use of availabledata • Can be measured in performance • Justifies an organization devoted to it. Can be part of a person’s time, but there should be someone who “owns” each segment.

20. Strategy for each segment: • Communications to the segment (direct mail, email, on-location personal attention) • Rewards designed to modify behavior • Controls to measure the success of the strategy • A budget for implementation of the strategy • Specific goals and metrics for engagement: for behavior modification • An organization that accepts responsibility for the segment

21. Segments and Status Levels

22. How one women’s chain segments their customers

23. Methods of Retention • Recruit right ones to start with • Communicate with them & reward them • Create segments • Predict attrition- Risk Revenue Matrix • Create a loyalty program

24. Methods of Retention • Recruit right ones to start with • Communicate with them & reward them • Create segments • Predict attrition- Risk Revenue Matrix • Create a loyalty program

25. Who is going to defect? • Besides LTV, you can develop a model that predicts which customers are most likely to leave. • Putting that model with LTV you can refocus your entire retention strategy • You create a Risk Revenue Matrix

26. Focus retention programs on A and B: 44% of your customers.

27. Using Risk Revenue Matrix • Telecom company sent special messages to priorities A and B. • Ignored customers in priority C • Result: Boost in retention and profits

28. Further results…

29. Methods of Retention • Recruit right ones to start with • Communicate with them & reward them • Create segments • Predict attrition- Risk Revenue Matrix • Create a loyalty program

30. What is a loyalty program? • A system whereby a customer has specifically signed up for a program. • She may receive a plastic card with her name on it. • The card is used whenever she shops in a retail store, on the phone or on the web. • The card provides her with some benefit she could not get without the card. • It provides you with valuable information that you can use to understand the customer and build her loyalty.

31. Who participates in loyalty programs? • Parago (www.parago.com) found that high income households ($125K and more), participated much more in loyalty programs than the average household. Notable participation rates were: • Airline Frequent Flyer Programs 92% • Hotel Frequent Guest Programs 79% • Credit Card Rewards 71% • Retail Store Programs 44%

32. How do loyalty programs boost retention? • Program permits you to keep track of customer behavior • You can see if valuable customers are reducing their orders or spending • You can proactively call them, write them, or make them offers Telecom company rewards program results:

33. A complete customer retention plan • Methods of retention • Recruit right ones to start with • Communicate with them and reward them • Sell them a second product • Get them to become multi-channel • Evaluation of Retention Programs

34. The value of a second product

35. Next Best Product • Collaborative Filtering can be used to determine for each customer her next most likely product. • Customer service and the web have this info available whenever a customer visits or calls. • Tests with GUS, largest cataloger in the UK, resulted in doubling the cross sale rate (from 20% to 40%) using the next best product on the telemarketers screens

36. Cross sales build retention • Customers who have more than one product have a higher retention rate. • Two reasons for second product: • Profit from the new product • Retain customers for the existing one. • An insurance company with independent agents used a model to predict the Next Best Product for each customer • Offered a 10% discount on first product if second is purchased

37. Selling a second insurance product Dear Bob & Kitty: As I figure it, you could save about $106 per year on your auto premium. Call me today! Susan

38. Automatic follow up note Dear Bob & Kitty I haven’t heard from you on the letter on the new homeowner’s policy. The savings on your auto policy are terrific. Call me. Susan Hughes

39. How did it work out? • 89% of agents invited went to web and participated. • 52% created personal notes • Recipient HH bought 11% more than the controls • Follow up letter created 8% more sales • Follow up phone gained 43% more.

40. A complete customer retention plan • Methods of retention • Recruit right ones to start with • Communicate with them and reward them • Sell them a second product • Get them to become multi channel • Evaluation of Retention Programs

41. Multi-channel users are more loyal Illustrative numbers from several case studies

42. Why the web is important to retention • Web customers are more affluent • Their average order size is 12% higher than phone orders. • The cost of the web order is 16% lower than phone orders. • Typical incentive offered is 5% off on any order over $50. • Result: 11% of non web customers shift to the web every year.

43. Creating a club on the internet • A company selling sporting goods created an internet member club. • When DB was built they learned that: • Club members bought 11 times more than non club members. • In two years, 81% of club members became multi-buyers. • The club boosted retention

44. Club Members Retention

45. Cataloger Customer Retention • Miles Kimball sent 20,000 emails with three different catalogs, and 20,000 with the three catalogs alone. • Those who got the emails bought 18% more than those who got the catalogs alone. More sales = Higher overall retention levels

46. Retailer Customer Retention • Video retailer sent email newsletters to 170,000 customers for 6 months. • Control group of 14,000 got no emails • Retail sales to test group was 28% more than to those without emails. More sales = Higher overall retention levels

47. One Click Ordering • With the web we use cookies to say, “Welcome back Susan”. • We keep her credit card on file if she wants so she can do one click ordering • Result, compared to controls, is higher retention and annual revenue from those who have one click ordering available.

48. A complete customer retention plan • Evaluation of Retention Programs • Tests and Controls • Return on investment

49. Why controls are essential • The sales force acquires new customers • Database marketers create higher retention rates • How do you prove this? • Retention program effectiveness can only be measured using control groups

50. Every marketing promotion should always be a test • Test those who get the promotion against the performance of those who do not get the promotion • If you are sending birthday cards or a newsletter, select 50,000 who do not get birthday cards or the newsletter. • Look at the control’s spending rate, and retention rate. • If there is no difference, your cards or newsletters are a waste of money.