This sponsored post is produced by Sailthru.
Imagine a Super Bowl coach so fanatical, he invests almost everything in offense. Extra quarterbacks, spare wide receivers, you name it.
The team is mighty. Until they turn over the football.
With so much invested in offense, there’s only enough money for one person on defense. He takes the field and… instantly gets crushed like an ant under a freight train.
Nobody in their right mind would play the Super Bowl this way and expect to win. But that’s exactly the way most companies budget for Customer Acquisition vs Customer Retention.
Here’s why that’s a painful mistake.
The bloody battle of the leaky buckets
With a finite number of customers in the world — and barriers to entry tumbling — nearly every business today is a leaky bucket. Every customer you acquire is a customer someone else loses; every customer you lose is a customer someone else acquires.
One reason acquisition numbers look strong is because retention is so weak: the customer company A “won” today is the same one company B “wins” tomorrow, and the same one company A “wins” again. Often, companies spend a lot to re-acquire customers when it would be far more efficient to keep them loyal.
Vince Lombardi, the guy who the Super Bowl Trophy is named for, said it right: “Confidence is contagious and so is lack of confidence, and a customer will recognize both.”
Worse, many customers are hardly worth winning. 95 percent browse and don’t buy — or buy once and vanish. Your most predictable, most profitable revenue comes from 5 percent of your loyal customers.
With everybody playing offense, the costs to acquire customers rises. The money-losing offer you make today will be met with a steeper discount by somebody else.
With the average tenure of a CMO at a scant two years, everybody has to make their KPIs in the short term — even if it makes no business sense in the medium or long term.
How to win: create AND keep customers
Peter Drucker, perhaps the most brilliant management mind in history, said “The purpose of business is to create and keep a customer.”
This is the core of Amazon’s strategy. In this SEC filing, the customer is mentioned no less than 30 times. Jeff Bezos says, “Proactively delighting customers earns trust, which earns more business from those customers (…) Take a long-term view, and the interests of customers and shareholders align.”
Build your acquisition strategy on your retention strategy
The typical method of acquiring new customers is almost entirely random. Companies pick up as many customers as they can — often at a fairly high cost — and hope that some of those magically turn into loyal customers.
It’s not enough to acquire customers. The key is to win the ones with the greatest potential to be loyal customers with high long-term lifetime value — something that requires real insight.
It comes down to this: looking at the behaviors of top 5 percent of customers you have today and then finding more of these high-spending, high-loyalty, high LTV people.
We’ve seen the results by combining Sailthru’s predictive LTV algorithms with the demographic-matching algorithms developed by Facebook, Google, and Twitter — and multiplied our clients’ odds of finding great customers. In fact, when we A/B tested this approach with Facebook for our customers, we learned it worked 4500 percent (not a typo) better at acquiring high-value customers. The key isn’t about finding more people who lookalike based on pure demographics (a common acquisition trap), but finding ‘actalikes’ based on how LTV customers behave and what they buy.
When you acquire more great customers and keep them loyal, your business gains momentum. Existing customers are 50 percent more likely to try new products, and spend 31percent more than new customers. And whether it’s content or commerce, the results are always the same. Clicks, revenue per user, customer satisfaction, and lifetime value all go up when using intent-based algorithms.
In fact, Insights 2020 revealed that 74 percent of companies that over-perform on revenue growth create customer experiences based on data driven insights, with only 30 percent of under-performing companies reporting the same.
Does defense really win championships?
Unquestionably. As Jason Keidel put it, “Each of four teams in the conference championship games leading up to the Super Bowl showcased a top-10 defense; seven of the top-10 overall defenses reached the playoffs; and the last three teams with the top passing defense reached the Super Bowl.” And ESPN agrees: “Since last June, every major sports champion (in every sport) has been defined by amazing defensive play.”
In marketing — with email, onsite, mobile, or every other tactic you could use — it’s time to ask yourself whether your company is really investing enough on Customer Retention to win.
The best offense is a good defense.
Neil Lustig is CEO of Sailthru.
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