How to use customer data to increase retention

Consumers are up against it right now. As the world finds its feet once more following an unprecedented few years heavily impacted by Covid-19, plus a whole lot of other factors impacting the cost of living, consumers’ budgets are tightening. 

Consumers are also now more considered in where they purchase from, Gen Z especially want to align with a brand’s values and feel they’re getting something that will last. 

With this shift in consumer behavior, we’re looking at how marketers can focus on retention, rather than costly acquisition to meet targets. There is room for both in your strategy, of course, but today we’re exploring the data that powers customer retention, and why now is the right time to harness it. 

Marketing budgets are falling

Marketing budgets have shrunk as businesses tighten their purse strings. A huge amount of layoffs and closures reenforce that the cost of living crisis is affecting everyone. Ever heard the phrase, you need to speculate to accumulate? It’s certainly true for acquisition. 

However, acquisition is costly. Depending on your industry, acquisition can cost between five to seven times more than the cost of retaining an existing customer. So, if you are up against it, reallocating your spend to customer retention could be the smartest thing you can do. 

What is customer retention?

Customer retention is an important part of any successful business strategy. It involves building and maintaining positive relationships with your existing customers to keep them coming back time after time. 

What is customer acquisition?

Customer acquisition is the process of acquiring new customers for your company. The goal of customer acquisition is to convert your customers into paying customers who will generate revenue for your company.

Is customer acquisition effective?

The rise of marketing opportunities online may make it feel like acquiring new customers and growing your marketing database is the answer to business growth. If there are more customers online looking to discover new brands, then you have a better chance of converting them, right? Not necessarily. 

While the acquisition is still a big priority for a lot of brands, competition is rife. You’re not the only brand to see the revenue opportunities offered by the new increased activity online. Brands like Google, Facebook, and TikTok want to keep users on their channels and clicking on revenue-generating paid ads rather than surfacing new brands organically. 

That means big brands with bigger budgets are the ones succeeding in converting customers. 

The benefits of focusing on customer retention

Investing in customer retention is a smart move for any company looking to achieve long-term growth and success. Improving your customer retention has many benefits: 

Rising customer acquisition costs can price you out of the market

Research carried out by Profitwell found that customer acquisition costs (CAC) had increased by 60% in the half-decade from 2014 to 2019. 

During the recent pandemic, when online demand for goods first surged, ecommerce giants like Amazon and supermarkets ramped up their tactics, investing massively in paid search and delivery fulfillment. With 74% of online searches starting on Amazon nowadays, it’s been made nearly impossible for brands to compete with these industry leaders for new customer acquisitions. 

Customer retention lowers churn rate

When customers leave because they’re unhappy with their experience, it costs businesses money — not only because they have less revenue coming in, but also because they have to spend money on marketing campaigns aimed at acquiring new leads (which usually don’t work as well as retaining existing ones).

How to improve customer retention

So, it’s clear that without the big bucks at your disposal, acquisition is a fickle game. Let’s explore how you can boost your customer retention instead.

Utilize customer data to inform your strategy 

Data as a concept can feel daunting and overwhelming, but ultimately, data is the truth. It’s information. Data allows you to know who you’re talking to, what they like, and what they respond to. Data tells you if your work is effective, or if you need to change some things.

One key benefit of customers shopping online vs in store, is you get access to so much more data. If a customer browses a few different items in store, but only heads to the checkout with a pair of trainers, you’re not going to know that a well-timed email offering 20% off the exact pair of denim jeans the customer was eyeing up will get you the sale. With online marketing, you can get this information easily - and it’s waaaay less creepy than following customers around a real life store with a notepad in hand. Trust us. 

Data is so important because humans are unpredictable. Everyone has different tastes, preferences, and behaviors. Data lets you see what’s happening, and adapt based on that to get real results. Let’s dig into the two main types you’ll want to focus on; zero-party and first-party data.

What is first-party data?

First-party data, also known as behavioral data, is information that a company directly collects via its own channels and sources. These channels include mobile apps, websites, social media, SMS, email, and more. An example of this is order history, browsing data, email click data, and so on. It’s information a brand collects naturally as a customer interacts with it, rather than explicitly asks for.

What can I use first-party data for?

First-party data is likely to be highly relevant to your brand due to the nature of collection. It’s data related to your product and web experience. Knowing that ‘Customer A’ has a tendency to browse a certain category, and purchase only when a discount code is offered, allows you to create a targeted campaign that will appeal to them and likely generate a conversion. Dotdigital’s eRFM technology helps you identify and segment your customers in this way and work to spot new opportunities.

First-party data is great as it lets you see what’s working and what’s not. This can be on a more detailed, individual level such as the example above, as well as general things like subject line learnings. For example, if 60% of your database respond better to subject lines with emojis in, using emojis is the better option moving forward. Of course you can also then create two segments and send each group their preferred subject line style.

First-party data should inform your decisions around general strategy, in particular it will inform segmentation and personalization to create highly relevant and effective campaigns.

What do I need to be aware of with first-party data?

We’ve established that data is great, it lets you know so much about your customer. But before you go off creating super relevant campaigns chock-full of personalization, remember your customers’ point of view. Utilizing this data to target people perfectly sounds great, but there is an art of subtlety needed too.

People are, understandably, wary of companies having lots of data on them. This is due to companies suffering data breaches or even selling their customers’ data on to third-parties (third-party data). You need to demonstrate to your customers that you value their data, and that you’re treating it carefully. This is a big part of responsible marketing, something which is no longer a trend, but a necessity if you want happy customers. Customers’ desire for tighter data practices is what drove Apple’s Mail Privacy Protection, and Google’s promise to end cookies by the end of 2024.

You also don’t want to be seen as creepy. Ever had an advert appear for something that you were just talking about? It can be unnerving. The odds are you have actually searched the product at some point, or you fit a ‘highly likely to be interested’ profile based on something else you’ve bought previously. (Or that our tech really is listening to us, but that’s a conversation for a different day). As always, you need to be mindful of the customer’s experience. You want to make your customers feel valued and understood, not feel like they’re being cyber stalked.

Got it. So what is zero-party data?

Zero-party data is any data shared willingly by contacts, such as via a survey, a sign-up form, or an account profile. Collecting zero-party data eliminates the “creepy factor” customers can often experience with a brand.

Although consumers are wary of handing out their data, they are willing to do so. For a customer, it must be an exchange; where they get a reward. Our customer loyalty report found that the top motivators across all age groups were to claim the signup discount/offer (35%), to hear about future promos (33%), and to become a part of the loyalty program (30%). Notably, 41% Of Gen Z (16–24) also chose curated content as a top motivator for signing up to a brand’s newsletter. If a customer shares their data with you, reward them by using it to make their experience even better.

What can I use zero-party data for?

Similar to first-party data, zero-party data should be used to better the customer experience. If someone tells you they prefer SMS, and don’t want to hear about Mother’s Day, respect that. It results in a happier customer who’s less likely to unsubscribe or flag you as spam, and it also stops you wasting time and money on campaigns you know they’re not going to be interested in - thereby helping customer retention and saving you budget on top. 

What do I need to be aware of with zero-party data?

Unlike first-party data, you don’t need to worry about seeming creepy as customers have consciously given you this information. One thing to consider though, is that not everyone knows what they want. A customer may say they’re not interested in a certain category, but their browsing and order history could say different. Which leads us to…

How zero-party and first-party data can work together

Zero- and first-party data should work together to paint a full picture of your customer. A combination of zero-party and first-party creates a reliable and accurate picture of your customers. Taking information from both sides of the customer journey and combining it to create a strategy that works both in theory and in practice, enables you to create highly-relevant campaigns, resulting in better performing marketing.

How to harness your customer data to drive retention

You can calculate your customer lifetime value (CLV) to help you increase sales and profit as well as boost customer loyalty. It can help identify segments that will generate the most revenue over time, enabling you to justify spending on your marketing campaigns. 

Thankfully, improved data capture, understanding of the importance of first-party data, and better access to predictive analytics tools mean that CLV can be forecast with greater accuracy. 

A great example of this is Dotdigital’s RFM customer modeling tool. By pulling in customer data from across your marketing stack, it intuitively groups customers based on the recency, frequency, and monetary value of their interactions with you. You can then build segments to target high-value and loyal customers or even customers who need nurturing. 

The end goal is to never let a customer go after you have invested in their initial acquisition. 

Whether through CLV, RFM, lead scoring, or NPS, you need to harness your customer data to target the right customer with the right message at the most optimal stage of their journey. 

Personalize your marketing for memorable experiences

Personalization is about more than addressing your email subscribers by their first names. Truly personalized messages and content take user behavior as they interact across your digital touchpoints into account, as do user preferences such as specific product recommendations, choices, and interests. 

This ensures that customers are seeing deals, promotions, and content that is relevant to them, on the channels, and at the frequency, they want to see it. 

Recent research found that customers are 80% more likely to make repeat purchases when brands create personalized experiences. These experiences can be anything from relevant product recommendations, to location-based updates. Overall, personalized communication on your website or in your email marketing campaigns can increase brand loyalty —particularly among millennials—by around 28%. 

Personalized experiences help you nurture your customer relationship by being useful, informative, and relevant to their specific stage in the journey. This will keep customers returning to your brand time and time again, leading to higher retention rates.

The long-term value of customer retention

Marketers must understand the long-term value of customer retention. Nurturing your existing customers is just as vital to your business’ success as acquiring new ones. Not only is it cost-effective, but the likelihood of converting an existing customer is 60–70%, whereas you only have a 5-20% chance of converting new prospects. 

The results will not be immediate, unlike measuring the growth of your marketing list. You need to ask yourself how you can improve the customer experience to keep customers coming back and turning into brand advocates. 

Calculating and tracking CLV and customer behavior will help you identify high-value segments and where you need to direct your marketing resources. In turn, this will ensure you’re getting a higher ROI for your marketing campaigns.