21 Keys to Improving Customer Retention through Relationship Marketing Programs

by Lee Marc Stein at www.leemarcstein.com

In preparation for an annual offsite meeting with a major client, we developed this checklist with copywriter Mark Hallen.

1. Realize that your Retention Program starts on Day One. If your business model involves lead generation, Day One begins with your handling of the lead. You not only affect conversion, but the tone of the entire relationship.
   If you’re generating most of your new customers at retail, Day One is what happens when customers open the box after they’ve left the store. Are you doing enough to get them to register with you? How can you help them use the product more easily?
2. Assume that all new customers are created equal. As a general rule that worked in the past, a new customer generated through direct mail always had a longer lifetime value than a customer coming through direct response TV, inserts, or retail. Now, because of the Internet and because consumers are using all their channel options, we don't know how good a customer they're likely to be. Only performance can dictate that. Therefore you won't be able to pick and choose which customers to invest in with a relationship program. As the relationship unfolds, we can reduce or increase the investment.
3. Don’t try to start the relationship in the middle. While an action-based loyalty program can be augmented at anytime, a true relationship program will get the biggest return by beginning at the beginning. There will be less effect with older customers.
4. Make it easy to be a customer. Remove some of the necessary barriers you set up for suspects and prospects (e.g. automated email and voice response, long login forms). Think about a dedicated phone line for repeat customers. Some companies have different (easy re-order) web sites for customers than for prospects.
5. Reward and recognize longevity. You can afford to give long-time customers discounts, special services, and red carpet treatment. Don’t think so? Do the math. In many cases, it’s not even necessary to invest in a formal “loyalty” program. Recognition can go as far in exceeding customers’ expectations as rewards. Stage and invite best customers to “inner circle” events, even if the customer has to pay for the trip. Example: For its Select Banking customers, Chase arranges for a week-long golfing trip to Scotland. Even having a dedicated phone line for long-term customers can help them understand how much they’re appreciated.
6. Divide and conquer. Score your customers as you would prospects and leads. You can do this in many ways – everything from the old standard RFM (recency, frequency, monetary value) to share-of-wallet and potential based on relationships with other direct marketers. Once your customer files are scored, break customers up into distinct groups and build mini-marketing plans based on the segments’ unique needs, previous behaviors, established predispositions and potential to grow. Be sure to establish control groups within each segment so you can see the incremental value of your new marketing efforts.
7. Personalize and customize. Think about how good it feels when the waiter at your favorite restaurant greets you by name and knows exactly where you want to sit. You return again and again and always tip more than usual. The same thing works even with hardened enterprise IT buyers. Give them advice, counsel and content specific to their needs. There’s no question that direct marketers have the technology to do this.
8. Market to the life cycle stage and to the customer’s schedule. New customers have different needs and expectations than those you’ve had for years. What’s even trickier is that new customers acquired today will probably have different needs than the new customers you acquired three, five or ten years ago did. Do the research to understand and respond to these differences. Track triggers to certain behaviors and use those triggers to time your messages. When is a customer most likely to buy again? Immediately? A month later? A year later?
9. Ask them what they want. Most people want their opinions heard. And they’ll like being asked for them. The act of surveying your customers makes them think you care. When you report the results of the survey back to them, that’s a double confirmation of your concern. While you don’t want to do format surveys too often, you can get feedback after particular transactions.
10. Turn customers into stakeholders. Build a customer panel and/or an advisory board and invite customers to join. You’ll be surprised by how many will join, share, refer and buy more as a result of their participation. If you listen and act on what they have to say, that not only builds their loyalty but makes them more willing to reach out to prospects.
11. Use the power of referral programs. No customer is going to make referrals and then defect. Most customers will feel even better about the value of your product or service when they refer you to people like themselves who have stronger retention value.
12. Give instruction on how to get the most use from products and services. Obviously, this is most important with brand new customers, but also has retention value when an existing customer renews, buys a more expensive model, or accepts a new release of the product.
13. Do not turn all communications into sales pitches. Don't train the customer to believe that anything with your logo is trying to sell him something. Communications that are thank you's, welcomes, usage tips, anniversary messages, case studies, etc. make the customer feel that he is more than just a target for additional sales, and pave the way for opening the envelope when you are selling.
14. Assume that all new customers are created equal. When somebody first buys your product, you may not how good a customer they're likely to be. Only performance can dictate that. Therefore you won't be able to pick and choose which customers to invest in with a relationship program. However, you can reduce or increase the investment in a customer as you see what kind of customer he is.
15. Don’t try to start the relationship in the middle. This is the corollary to #1 (realize that your retention program starts on Day One). While an action-based loyalty program can be augmented at anytime, a true relationship program will get the biggest return by beginning at the beginning. There will be less effect with older customers.
16. Understand that unexpected “perks” do more than expected ones. Think carefully about how you position extras. Let’s say, for instance, that you’re marketing software to an installed base. If the upgrade mailing says "and you'll get 30 days free support" it might get some extra sales, but it may also decrease response because the customer thinks support will be necessary. It also raises expectations and may lead to disappointment. However, if you tell users AFTER they upgrade "to thank you for your purchase, we're giving you 30 days FREE support" it can't have a negative affect. It lets me know you're thinking about their welfare, since there is no (obvious) profit in it for you. In addition, because it was a "surprise" and not an incentive, users’ expectations for it are lower: whatever they get is a bonus.
17. Determine the effects of any retention or relationship program only in the long term. By definition, any relationship program must be viewed as a long-term investment with the potential for a sizable, but deferred, return on that investment. Do not look to see results this quarter or even this fiscal year. Your customer will reward you for good products, service and treatment only after a long enough period of time that establishes this as your company's way of doing business.
18. Make customers feel that the relationship is worth something. Here's a real relationship killer. I get a mailing with a special "customer price," then see a lower price in a store (or store circular) where anyone can walk in off the street. Treat me as an "insider," eligible for things that a non-customer can't get. Otherwise, what's in it for me?
19. Keep a Control Group long-term. To accurately measure the affect--and ROI--of a relationship program, you must retain a control group that has absolutely no contact with any component of the relationship program. Just as important, every action of this control group must be compared to the test group for a long period of time.
20. Define your goals and be sure they can be accomplished. Direct marketing is not a branding or image medium. Even mailing monthly, the frequency just isn't there to create a brand. Direct marketing can reinforce what I already think about the company, but not change it. That's why it's so important to start with new customers; that's when they feel best about us, so it's the best time to build on that.
21. Do not even think about a relationship program without reciting this mantra: "LIFETIME CUSTOMER VALUE IS EVERYTHING." All marketing should have lifetime customer value in mind, but it's the whole point of relationship marketing. Three, five, 10 years from now, how much more business have you done with Customer A (in whom you invested in a relationship program) vs. Customer B (in whom you made no additional investment). If you don't plan to look at the program this way, there's really no reason to do it in the first place.