Polly Wong, managing partner, Belardi Wong
Direct-to-consumer brands (DTCs) understand customer acquisition inside and out. They budget for acquisition and plan for it. They model and measure it to the last detail. Finding and converting new customers is built into the fabric of how these companies operate.
Keeping these customers is another question entirely. Startlingly few DTCs budget for customer retention; they don’t measure it effectively, and they don’t build it into their product and customer strategies. The majority of DTCs prioritize new customers at the expense of their existing ones.
That is a massive oversight because retention is the key to profitability. Acquiring customers is always expensive and it never generates a positive return on investment (ROI) unless there is a robust mechanism in place for driving up lifetime value and repeat purchases. On the flip side, spend on customer retention, when done right, produces a 10 times to 15 times return on advertising spend (ROAS)—a benchmark that is not as unattainable as it might seem at first. A company built to acquire customers but not retain them is, mathematically speaking, unable to turn a profit.
This insight has come recently to many DTCs as a rude awakening. As they seek out every pocket of performance and efficiency in their media spend, they are beginning to realize that their existing customers offer the most viable path to short term revenue and long-term profitability. But, beyond rudimentary email-based customer relationship management (CRM), they realize that their retention capabilities are in desperate need of a lift.
Retention takes place in six major channels: email, display ads, paid search, paid social, SMS, and direct mail. Most brands know what to do with email, but don’t know how to diversify into these other channels effectively. Here are some of the tactics they can employ in each channel to boost their lifetime value.
- Paid search: Paid search works most effectively for retention when you’ve uploaded your customer file for targeting on Google. If a customer has not bought from you in 18 months and she’s now on Google searching for a product you sell, you should be there at the top. It’s worth the cost. Not acting on that signal is to cede market share to a competitor—surely a steeper cost than the bid on a key search term.
- Paid social: DTC brands have grown by mastering the art of prospecting through paid social, of building lookalike audiences based on the active buyer, and on using social to retarget prospects that have already been to the website. But social is also a more effective channel for reactivating customers than email. (Reactivation is the discipline of targeting people who have not bought in a year to get them to buy again). In addition to using social to find new customers, use social to reach for your inactive customers and reactivate them with personalized messaging and offers.
- Display: Display is also a viable channel for reactivating lapsed customers. You can use data-driven buying tools to target consumers based on recency, frequency, and other variables. You also can make display—which is otherwise an expensive channel for acquisition—an effective one for retention.
- SMS: SMS is an emerging channel tied closely to the maturation of location data signals. Platforms powered by anonymized location data can automatically message existing customers when they are close to a physical retail store – already a regular occurrence in communities where stores have been reopened. SMS is a great way to remind nearby customers that you are still open or inform them that you’ve reopened – an essential practice at a time when many customers might reasonably assume that you are closed.
- Direct mail: Direct mail is extremely effective at driving up lifetime value from new customers, especially for the conversion of one-time-only buyers and for the reactivation of lapsed customers. With DM, you have a 100% reach rate and 100% open rate- after all, even to recycle the piece, customers must touch it. We almost always see that direct mail reactivation generates a positive ROI.
Each of these channels offers different tactical advantages in the broader goal for customer retention. But as described above – retention itself needs to become a strategic priority for DTCs, right up there with customer acquisition. Retention is what makes the price of acquisition ROI-positive. The profit from your existing customers can then offset the cost of new customer acquisition, paving the way for a virtuous cycle of profitable growth.
Belardi Wong is a digital and direct marketing agency based in New York City.
Favorite