It takes far more effort to acquire a new customer than to retain one, says the old business adage. And the benefits can be far greater when you know how to target efforts to maximize impact retention in a cost-effective manner. It is also possible to limit losses by identifying and appropriately dealing with unprofitable customers and those that do not advance the mission or market position of your organization.

Throughout this article, we speak about customers, but you can easily replace the term customer with member and this article becomes an exploration on how to retain members for your association or non-profit.

Customer retention as strategic market planning

The role of customer retention in the overall organizational strategy is one of protecting and managing the primary source of resources. It is also one of defending and enhancing market position and of optimizing resources and opportunity. That is why, although seemingly a purely tactical approach, customer retention also belongs in the realm of strategic market planning and is a required strength inherent to any successful organization.

The most effective way to manage retention is to identify those key areas where efforts can be leveraged for maximum impact. With retention targets identified and prioritized, it is then possible to develop a customer management plan that efficiently applies retention management tools and monitors progress.

Optimizing resources

The EurekaFacts approach to customer retention stems from the assumption that within any population of existing customers it is possible to identify several segments with different attributes, including purchase behavior. Each segment has consistent responses to specific marketing efforts which allows for the planning and execution of targeted efforts to maximize retention. Targeting segments supports resource optimization as well as maximization of each customer relationship.

Identifying and gaining an understanding of loyal customers and heavy user groups among your customer base is important. Knowing who your at-risk customers are, is perhaps more so. The strategies applied to most customers are focused on loyalty and revenue-building (e.g. up-sell, cross-sell and similar efforts). When you identify segments with a higher propensity to leave the organization, it is then easier to develop targeted measures aimed at increasing retention among these groups without having to invest excessive resources in those who are not a flight risk.

 

1. Develop a retention and customer management plan

Many marketing and business plans are focused on the acquisition of new customers, because of the complexity and cost involved in segmenting and targeting audiences and positioning to attract new customers. However, it is equally important to develop plans that address the needs of your current customer base. This includes overall objectives, strategies, tactical programs and feedback through key business metrics. Just as targeting an external market, a critical process in the marketing effort for your customers is the segmentation, targeting and positioning strategy (STP).

The STP process consists of segmenting your customer base, identifying and offering the services that best meet the needs of target segments, and packaging the bundle of benefits into a compelling position that occupies a niche where your organization can claim and maintain market differentiation.

At the heart of any retention management effort is the need to manage the Life Time Value (LTV) of the customer. Beyond the simple discounted cash flow view of each customer, your analysis needs to include the following:

• Evaluate the life expectancy of the customer relationship: study the cycle, the events, and circumstances that prompt continued involvement as well as those that cause attrition.
• Identify the services used among the customer base.
• Assess customer knowledge of available services and products available throughout your organization.
• Identify the demographic, behavioral and attitudinal variables of your customer base with special emphasis on identification of those attributes that separate loyal customers from defectors.
• Identify the Key Moments of Truth: discover the timing and interactions that define a customer’s intention and action to renew or defect.
• Examine opportunities for maximizing the value and the utility of the services to existing members or customers.
• Assess the cost of renewal, both monetary and non-monetary.
• Identify decision-makers and influencers.
• Evaluate the current cash flow and opportunities.

2. Segment the customer base

Addressing possible segmentation schemas, it is common to find the application of Pareto’s 80-20 rule. Plans that focus on this approach usually include specific tactics for the top customers (20%) who generate the highest revenue or profit (80%) and develop cost-efficient strategies for the bulk of the customer base. This type of tiered approach is useful but also has its limitations.

When you look at your customer list, those in the bottom section may include groups of light users, sporadic joiners, nearly inactive customers, and former customers. Some of these group (a.k.a. segments) carry the potential for much higher involvement, while others may not be worth pursuing at all. Most retention strategies ignore groups toward the bottom, leaving vast opportunities untapped.

Develop STP alternatives

Conducting multivariate segmentation of the customer base with respect to the attrition rate will uncover the likelihood of leaving across several attributes such as 1) demographics, 2) usage, 3) geographic distribution, 4) service unit, and 5) attitudinal values.

Examining these segmentation schemas and prioritizing them can uncover the needed steps necessary to address each group. Once you know which segments are most likely to leave and the factors that shape their higher attrition rate, it becomes easier to develop plans to increase retention among your current customer base.

By identifying possible strategies for each segment and their expected response to each strategy it becomes possible to evaluate segmentation-targeting-positioning alternatives and choose those that offer the highest potential.

It is also important to step back and examine segments not only as the make-up of the customer base and the building blocks for the marketing strategy, but also as a portfolio of assets. Examine segment size both in relation to the total customer base as well as to the total market niche, segment growth, market penetration, acquisition cost, renewal/ maintenance cost, strategic value, and lifetime value.

Some possible segment-by-segment strategies may include adaptive and customer-change strategies:

Adaptation

• Modify service offer – create young professional networking environments to capture those who are new to the field.
• Address service quality – establish monitoring mechanisms to track the percentage of customers receiving the minimum service level offered. Review messaging to identify areas where over-promising may be taking place.
  

Customer change

• Educate customers – deploy service awareness messaging to those who have not utilized services that generate involvement and commitment. Prepare customer orientations, new member manuals, guides, and online user resources.
• Adjust expectations – identify service glitches quickly and alert customers of the issues with as much advance notice as reasonably possible.
  

Timing Analysis

• In analyzing timing, it is important to examine it with respect to the original purchase as well as in relation to other events. Plot the customer life cycle, identifying when they are most likely to leave. Often new customers have a higher than average attrition rate. Also, examine the response to the renewal series and overall fit of the messaging platform for each segment.
  

Predictors of Attrition

• Identify the predictors of attrition and renewal and manage them. Professional associations may have attrition that is partially driven by the level of reimbursement offered by their employer. Understanding the career cycle of individuals can then unlock opportunities to transition individuals from employer-paid memberships to individual dues-paying continuation strategies. This can also assist you in the messaging necessary for those who inherit institutional or employer-paid memberships and offers.

The chart below shows the output of a multivariate analysis that separates a customer base by the top predictors of renewal. Each node represents a particular segment of the membership with distinct characteristics. In the image below, D and E are the at-risk segments, and F and G are the safe segments.

3. Target offers for each segment

At-risk customers

Once segments have been identified and characterized, it is essential to lay out a path to secure retention and greater involvement. In many cases, it is reasonable to pick the services that, if used, will generate greater loyalty. When many options exist, it is also possible to identify these offers through data-mining, pinpointing the optimum series of offers. True market segments show a consistently similar response to market stimuli, so once you have identified a successful path for each segment, you can turn the retention strategy into one that also helps optimize involvement and revenue.

To develop the path, the key steps are:

• Articulate your objectives for each segment.
• Define your communications and positioning objectives.
• Identify the services that are hard to replace and build compelling offers to make them part of the critical path.

Examine the demographics and attitudinal sets of your at-risk audiences to test affinity with the current retention and renewal strategy. Once you identify the motivators for continued involvement it is possible that existing communications and services are insufficiently targeting at-risk segments.

To fully benefit from the segmented approach it is often necessary to examine those unprofitable/unattractive groups that need to be weeded out or transitioned to more profitable platforms. Managing churn is often counter-intuitive to those who march to the objective of growing the customer base. But when the cost or effort of retaining a member exceeds the total value of retention, it is necessary to develop upgrade/exit strategies.

New customer acquisition

When planning new customer acquisition efforts, using segmentation to gain an understanding of the expected loyalty and profitability of customers is instrumental. Applying the same principles to prospective members, an association can choose to focus on a particular segment of the prospect base. For example, it is common to focus on new entrants to a professional field. They may be more likely to respond to a particular offer. However, are the new entrants more likely to stay in the field than those who have been in it for more than two years? A similar situation occurs with those who join an association responding to a discount for an upcoming conference. Because the promotional offer (convention discount) and the long term service offered (professional membership) are not completely aligned, the life expectancy of the membership may be lower than for those who were simply sold on an offer to gain access to the full set of membership benefits.

With an understanding of the segments and the drivers of attrition, retention and renewal communications can be seen in a new light. If these are standardized across segments to include social media, email, and renewal invoices, you will know where there is ample opportunity for improvement.