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The Paradox of Innovating in Retention: The Unsexy Can Make You Sexy

The Unsexy Can Make You Sexy

The key innovations in customer retention today are not necessarily bleeding-edge new strategies or technologies, but enhancements and well-imagined reinterpretations of classic marketing techniques: subscription, curation and re-ordering. Subscription is both the latest trend and something that dates back to the Book-of-the Month Club, which has passed its 90th birthday. Curation and re-ordering tactics are in much of the same category.

The real innovation that makes it all work for increased retention: sophisticated use of data.

One of the most interesting trends in loyalty and retention management these days is how many program managers list “acquisition” as being one of the most important goals for their loyalty program. The ostensible reason for having a loyalty program is to retain the customers you’ve already acquired, but that is not why many companies say they are adding loyalty programs. Their goal is acquisition.

Clearly, retailers are panicked by headlines about the ascendance of Amazon and the death of malls, so their primary focus is on building traffic. They want to acquire the email address of every warm body crossing their real or virtual thresholds and then blast messages several times a week begging for a visit. They fear targeting their emails (even in the face of proof of improved response rates), because even a fraction of a response from the last million emails on the database might drive one or two more bodies into the store or online.

In this environment, the greatest problem with retention often lies in bad acquisition and uncaring onboarding. If you focus only on quantity instead of curation, you won’t nurture the consumer who has the potential to be a valuable repeat customer with motivating messages, at the right time and place.

The second trend often cited as building retention is centered around the growth of subscription services. On the surface, “subscription” appears to be the perfect innovation in retention strategies. All the major brick and mortar grocers and retailers are working on adding or acquiring subscription-based services. But at its core, the focus remains on acquisition and the goal is building the largest subscriber base. Amazon Prime just crossed 100M members and Netflix crossed 125M.

The figures to look at are the ones hidden behind the hype – Amazon Prime members renew in the 90% range. That’s higher than historical retail fee-based reward programs and higher than the re-order rate for many current subscription-based services. How did they do that? THAT’S where there’s innovation in retention.

Of course, there’s the price incentive of free shipping – but you have to make sure that you order enough to earn back your $90 of investment in that “free” shipping. That’s only part of the story.

The real driver of retention in today’s marketplace is a focus on convenience and building habit. Make it easy to do business with your company and you’ll retain your customers.

Amazon does this with optimized shopping and order experiences across all their formats and product lines, from shoes and detergent, to TV shows and movies. Plus, you can automatically apply your choice of loyalty currency for a discount at check-out – American Express, Chase Sapphire, Hilton, or the most convenient of all, your Amazon Prime card, which now earns you 5% back from Whole Foods Market. The optimized number of clicks leads naturally to optimized retention.

One of the more intriguing retention developments is what Sephora calls “replenishment,” an approach more refined than a simple re-order strategy. They work their loyalty program data by sending reminder texts and emails to a member just as she is likely to notice that her mascara is starting to clump unattractively. Sephora has made eye-popping claims at conferences about the response and amount of growth they’ve achieved from replenishment initiatives.

The biggest news in retention can be summarized as:

  1. Don’t blame retention strategies for failure to acquire the right customers in the right way.
  2. Don’t assume that adding a subscription option will automatically earn you Amazon’s 90% renewal rates – be sure to design your experience for ease and convenience.
  3. Use your data in brand-appropriate ways to build your business.

These solutions may not sound sexy – they involve hard work and require thought. Just keep in mind, that this hard work on retention is a large part of how brands like Amazon and Sephora stay sexy in the marketplace.

Author: Kate Hogenson

Kate is a Loyalty Strategy Consultant at Kobie Marketing. She has been launching influential loyalty programs for some time – she can tell you the inside story of how Mileage Plus 100k elite status came to be called 1K. Before Kobie, Kate was a Partner at Metzner Schneider Associates, a boutique consultancy for program design, building the case for loyalty, and customer experience implementation. While there, she was vital to the launch of Virgin America’s innovative Elevate program and the ShopYourWay Rewards program for Sears and Kmart. Kate also has hands-on experience managing the global expansion of Mileage Plus and launching elite benefits for United Airlines. Kate holds a BA from Northwestern University and an MBA from Yale.

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