Option one. Do nothing, or at least nothing different. I am amazed by the number of organisations which, when facing the problem of a stalled customer acquisition programme plus the menace of an eroding customer base decide to do nothing about it.
Option two. To keep focusing on acquisition. They know it’s no longer working, but they keep firing out campaigns in the hope something will happen. This is part of a syndrome that says acquiring a new customer is always sexier than retaining a current one.
Option three. Cross sell or upsell. This is taken by those who are at least aware enough to know that they need to do something different. They’ve got customers who’ve bought before, so maybe they’ll buy something else, or something extra.
They’ve also got customers who have bought, but are not doing so any more. So, they’re either buying from someone else (they’ve defected) or they’re not buying from anyone. This final group is difficult to re-engage with. If they don’t have the money spare, then it won’t make a difference what you do. The key is to identify them, so you don’t waste resources trying to re-activate a relationship that simply isn’t able to respond.
The middle group (defectors) is who you want to identify before they defect. It’s not sexy, but it’s about building a relationship so they won’t defect when you need them. The difficulty is that you’re interested in the relationship, but having spent little time developing it in the good times, you’ve given the customer little incentive to value the relationship when you most need them to.
The first group those who might buy more, even in a difficult market are gold dust. The trouble is, apart from the odd quick win, setting up up-sell and cross-sell programmes to replace missing revenues from newly acquired customers takes time. Not only that, but relationships are two-way processes and customers won’t do what they don’t want to do, just because you want them to do it.
You need to allocate the highest proportion of your budget towards activities that are most likely to be productive. Firstly, as not all your customers are equal, it’s essential to find who are your best and worst. Once you’ve pinpointed the best customers, use marketing to encourage them to stay. They probably have little up-sell potential (they’re already buying a lot) but the cost of them defecting is huge. Marketing spend here is protective. Your measure of success is shrinking churn figures.
Then find middle-ranking customers and use marketing spend to encourage them to buy more. Identifying what to offer is best done through building propensity and targeting models. Your measure of success is profitable sales growth.
For low-value customers, the simplest solution is to reduce your own cost of servicing. This includes doing less marketing and reducing service levels. Your measure of success is a combination of overall cost reduction and individual profit.
Note that for the lowest value customers, I’ve advocated reducing spend, whilst for highest value customers, you might end up spending more to reduce churn level. At the same time, the churn level may well go up in your least profitable group, but if you get the maths right, you may well find this helps overall profitability.
So, three different strategies for marketing in a recession. If you are finding acquisition harder, then one final piece of advice; check your churn/defection rate. That should tell you how quickly you’d fall off the cliff, if you don’t take option three.
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