Customer Retention 21

4 Steps to Profitable Customer Retention

These days, customer loyalty and customer retention are hot topics. After all, customers are more valuable than ever. But are you looking to retain every customer, regardless of their value to your company? Believe it or not, this isn’t the best route to improve profitability.

Not all customers are created equal. Some customers buy more than others. Some buy less, but they buy higher margin products. Some customers buy less, but they buy frequently and give you a steady cash flow. Some buy so little that keeping them actually costs you money.

Do you know which customers are which? Why not get the greatest “bang for the buck” by spending it on the customers who bring the greatest return? How do you find out who those customers are?

In-House and Under-Utilized?

With a little training, you can utilize the software you likely already have. You can use Microsoft Access and Excel, for example, or free solutions like MySQL, to create pivot tables that will do simple sorting (most dollars spent, most frequent purchases) and create cross-tabs to understand your data better.

With additional training, you can create more sophisticated tools, such as customer lifetime value (CLV) models and recency, frequency and value (RFV) models that will help you profile, sort and “score” your customers in even greater detail.

If you don’t want do this yourself, there are small, affordable outsource solutions providers who can do it for you. There are even companies that have created Internet- based data mining interfaces that allow you to upload your data and work with it on a “software as a service” (SaaS) model.

With a little extra effort, you can focus on the ones that are the most profitable to you.

Boost the Impact

Once you are focusing on your most valuable customers (the definition of “most valuable” will vary from company to company), you can boost the impact of that targeting with personalization. Side-by-side tests repeatedly prove that not only are customers more likely to respond to well-produced, personalized communications, but when they do respond, they order more than those who received non-personalized communications.

In short, a good customer retention program should include these four elements:

1. SORT by behavior
2. IDENTIFY the most profitable behaviors
3. SELECT and TARGET the most profitable segments
4. PERSONALIZE the content

Once you begin profiling your customers, you can really begin to cultivate those relationships. If you know your highest volume customers, you can encourage them to purchase more frequently. If you know your most frequent customers, you can encourage them to purchase in higher volumes.