10 ways to re-activate your customer baseby
17th Jan 2013
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If CMOs can start to successfully re-activate lapsed customers, brands can start to utilise the immense power of the omnichannel world, says Daniel Binns.
One of the most fundamental lessons that every marketer learns during the first day on the job is that it costs around six to seven times more to acquire a new customer than to keep an existing one. In today’s ultra-competitive market, where revenues are under pressure every quarter and margins are continuously squeezed, this lesson is more relevant than ever.
The problem is that we now live in an omnichannel world. The brave new realm of always-on communications means consumers are presented with more choice through more channels than ever before. Brands have more opportunities to connect with customers than in the past, but also have to fight harder to win a share of attention in a fiercely competitive market.
Winning customers is only half the battle though. Once a brand has connected with a consumer, it needs to devote time and attention to keeping the emotional bond between itself and the customer alive. Let it stagnate and the impact will be felt on the bottom line. Online American grocer FreshDirect experienced just this. Founded during the DotCom boom, by 2008 and after several rounds of substantial investment, the company was struggling badly. Due to their self-confessed issues with customer service, repeat business was almost unheard of. The only thing keeping the company afloat was its ability to churn through customers, mostly by offering heavily-discounted incentives for first-time buyers.
In 2008, the company took the drastic and controversial decision to discontinue all incentives for first-time buyers, and concentrate on improving the service offered to existing ones. Despite internal disagreements and concerns, the strategy paid off and today the company is back in the black and expanding rapidly. “The trick…isn’t to acquire new customers,” said CEO Richard S. Braddock at the time, “it’s to make them loyal.”
Reactivation gold mine
Granted this example is as much about how to rescue a failing business as it is about re-activating your customer base, but the significance of the latter should not be underestimated. Research by management consultancy firm Bain & Company has found that customer attrition rates could reach 50% if databases are left dormant over a five year period. Indeed, it is not unusual for big brands to have a 50% inactive customer base, which can potentially equal millions of customers and millions of pounds in lost revenue.
It is therefore surprising that more brands are not focusing on re-activating their customer base. There are, of course, a few notable exceptions. Kraft foods has a hugely successful email campaign to re-activate lapsed customers with the incentive of discounts off a huge range of products, while Costa coffee personalises each email to its customers with details about their accrued loyalty points to stimulate in-store purchases. However, a significant proportion of brands have not yet prioritised the targeting of lapsed customers.
The current financial environment around the world understandably makes brands wary of embarking upon what they perceive as a high-cost, high-risk strategy. Indeed, it makes sense to astutely balance both customer acquisition and re-activation strategies, but to ignore re-acquisition initiatives completely is to overlook potential revenue gains. Re-acquiring customers not only helps increase revenue, it can also directly affect profitability. At a conservative estimate, a brand can expect metrics from re-engaged subscribers to be 50% above the rest of the ‘active’ file.
No short cut
A brand’s customer database is its most valuable asset. Understanding why customers have become inactive is critical to devising the best-bet engagement and communication approach. Brands must use past activity and behavioural interactions to increase the chance of re-activation. Data like activity rate, purchase behaviour, channel preferences – all of this will help an organisation shape the best customer profile to pick to re-activate. Combining these tactics with careful analysis will allow CMOs to increase the chance of picking the best options from a dormant file and increasing ROI.
With such potential locked up in a database, it may be tempting in some instances to dive straight into teasing out these potentially lucrative customers. Testing, however, is a brand’s best friend. Although tempting, it is unwise to target the entire customer set once re-activation targets have been identified from the data. In the first instance a sample should be approached, and then a full blown campaign rolled out based on the initial results.
Understanding how lapsed customers were previously interacting with the brand is a vital step in this process. If it was via email, contacting them again via email is probably the most suitable choice (unless the records show they historically opted for another communication channel). Forrester recently found that while 33% of transactions by new customers involve more than one trackable touchpoint, 48% of repeat customers visit multiple trackable touchpoints, largely because those customers are more likely to be email subscribers and email is a significant driver of traffic to retail sites. As a result, 30% of transactions by repeat shoppers started with a click on an email from the retailer.
Email alone is not enough
Customers need to be able to easily engage with the email, as well as the website. Brands should aim for an optimised, content heavy, dynamic, relevant site with a simple payment process. Forrester found that 75% of consumers seeking customer service online turned to another channel when a firm’s website let them down. Of the channels they switched to, the phone was by far the most popular. If customers are forced to turn to the telephone, this not only increases the support costs to the brand, but also increases the customer dissatisfaction. Indeed, the research found that when trying to purchase a product or service online, 17% of US consumers who failed to complete their goal took their business to a competitor.
Many retailers now complement their customer outreach programmes with at least some form of social media strategy. Social media is a powerful instrument for reinforcing personal relationships, but in most cases that isn’t quite transferrable with commercial relationships. In the majority of cases it is not appropriate to use social media as a re-activation tool. Many lapsed customers may have been dormant for many years, and it may be the case that brands have never connected with them via social media in the past. In fact,recent research from Forrester found that fewer than 1% of transactions for both new and repeat shoppers could be traced back to trackable social links.
That said, there may be occasions when social outreach could prove successful. A study from Pew Research Centre in 2011 found that 13% of US adults use Twitter. Depending on the demographic of a brand’s customers, it is possible to achieve match rates of between 9% and 18% between Twitter and a brand’s email list. While social channels such as Twitter don’t offer the ability to reach a significant proportion of a lapsed customer base, those they can reach are often extremely connected and very valuable to a brand.
Whatever method is most appropriate, re-activating and reconnecting lapsed customers is a powerful strategy for any brand looking to directly impact its bottom line. Social media and technological advances may have increased the amount of channels available to consumers, but conversely this omnichannel environment is actually a gift to brands. If CMOs can start to successfully re-activate lapsed customers, brands can start to utilise the immense power of the omnichannel world.
Top 10 tips for re-activating your customer base
- Use previous activity and purchase history to drive interactions. The insight drawn from historical transactional and behavioural data and the analytics is fundamental to the design, implementation and success of re-invigorating the inactive.
- Identify a control group and isolate people to measure. By selecting a control group you are by inference testing.
- Test the control group from profile selection to messaging and communication components (e.g. timing, offers, personalisation, cadence, creative, channel, follow up actions, etc.). Data and sound metrics are fundamental to successfully testing the selection.
- Identify an appropriate period for lapsed interaction. For example, the purchasing cycle of a car versus a newspaper subscription is completely different. When consideringwhether someone is “lapsed” remember that it should be relevant to your market.
- Ensure email correspondence contains a strong, memorable subject line to create engagement.
- Play with the creative to ensure relevant content hits lapsed customers (e.g. “Free”). While subject lines in emails prompt people to open emails, the creative is the prompt for them to act.
- Make any communications interactive and easy for the customer to do something, whether that is visiting the website, completing a survey or making a purchase.
- Reduce cadence – once re-engaged reduce the cadence to maintain engagement.
- Treat the re-activation file as an additional acquisition file. Customers that are successfully re-activated and subsequently nurtured have the potential to become the most loyal and profitable. Compare the metrics to your acquisition data not your house file.
- Take a lifetime value approach. For example, re-activated customers may produce no revenue in the first month, but could then produce gradually increasing revenues in subsequent months. It might not be huge but in the end it is better than a lapsed customer contributing nothing to the bottom line.
Daniel Binns is UK client services director at Epsilon.