Any architectural structure is in danger of collapsing without a solid foundation. The same goes for your customer retention strategy. With a fragile foundation, it will soon start to shake.
A deep understanding of customers is the foundation of your customer retention, and you'll lay this foundation with customer data analysis.
Let me explain this further with an analogy.
It's a Customer Jungle Out There
If you wanted to preserve a wildlife ecosystem, you'd probably start out by researching the different animals in your ecosystem. You'd need to learn how to provide the right balance of vegetation for the herbivores and prey for the carnivores. You'll need to discover their sleeping habits and temperaments, etc. Once you understand the differences between different species, you can classify your animals into different groups. With these groups, you'll have a bigger picture of the proper habitat, basic necessities and individual attention you need to provide in your ecosystem for those animals to survive — and thrive.
Just as you would map a wildlife ecosystem by identifying, classifying and differentiating between different types of animals, you'll do the same for your customers. As you identify the different types of animals in your customer jungle — the pandas, zebras, elephants, lions and bears — you'll understand them more deeply. You'll know the preferred diet of each one, along with which ones are nocturnal, which are gentle and which are fierce.
This greater understanding of your customer ecosystem is your first step to creating a personalized and relevant customer retention strategy.
Customer Modeling Identifies and Classifies Your Customers
So how exactly can you identify and classify the different animals in your customer jungle? One solution would be to apply customer behavior modeling.
Customer behavior modeling identifies different customer types and classifies them according to common behaviors among particular groups of customers. The model also predicts how a similar customer will behave under similar circumstances.
Many customer behavior models, however, are oversimplified and don't take into account historical behavior. Others don't give marketers a good idea of the proper marketing action to take for each customer or group of customers.
By applying customer behavior modeling to your customer retention strategy that tracks customer behavior over time, you'll not only be able to cater to customers' current needs and affinities, you'll be able to anticipate future needs, activity, behavior and customer lifetime value as well. You'll use this data to create a customer retention strategy with personalized and relevant campaigns that are flexible and adapt well to dynamic customer behavior.
Anticipating Dynamic Customer Behavior, Needs and Affinities
Let's explore a few examples of customer modeling from our experience in several online business verticals.
Top VIP Shoppers – Within many e-retailer businesses, a very small percentage of active customers are big spenders who make large and frequent purchases. You'll want to keep this valuable customer group continuing to spend. After all, they are giving you great business! Show your appreciation through highly personalized campaigns, discounts and special offers, and the likelihood increases they will continue to be valuable customers.
About to Churn – It is very valuable to identify which currently Active customers are in danger of churning. Marketers can then deliver the right personalized and relevant campaign to proactively prevent their churn and reengage them before it’s too late.
Charmed Customers – It is extremely important for online consumers to feel they've had a good experience, not just in those first few purchases, but as they continue to buy future items as well. What was it that made their experience so positive — a special discount, excellent customer service or a range of product choices? You'll need to figure it out, because these "charmed customers" (with higher than average response rate and engagement) have a high likelihood of returning, a high customer lifetime value and are valuable customers worth hanging on to.
Cherry-Pickers – When online consumers take advantage of discount that is oftentimes quite high (we call these the cherry-pickers), they are less likely to return again. You'll need to be wary of sending them aggressive campaigns lest they constantly come back to your site only for a discount. Instead, you'll want to find ways to connect them deeply with your brand.
Seasonal Customers – Certain customers will only purchase during a particular season, such as the swimsuit or skiing season. Once the season arrives, however, they'll purchase lots of items related to the season. Identify these shoppers during the right season and you'll be able to target them with relevant cross-sell campaigns, and entice them to shop all-year-round.
Of course, there are many more examples — this is just the tip of the iceberg in customer modeling!
Prevent Customer Extinction
In the wildlife jungle, we determine which animals are endangered and do our best to prevent them from becoming extinct. Just as animals in the wild are in danger of becoming an endangered species, so too are groups of customers in your customer ecosystem. If you don't adequately provide for their needs, they won't survive in the customer jungle.
Modern consumers demand fine-tuned campaigns with great attentiveness to their current and future needs. The competition out there is intense, and you need to be the one who commands their full attention. If they don't receive the most relevant campaign for them, they'll leave — and buy from the competition. From your point of view as a marketer, they're on the way to customer extinction.
Encourage Survival of the Fittest Customer
At the same time you're preventing customer extinction, you'll also want to encourage survival of the fittest customer. You'll want to encourage customers with the highest lifetime value to continue to purchase — and become bigger and stronger (in lifetime value terms). It's a two-pronged method for building a healthy customer ecosystem.
Once you've identified all the animals in your customer ecosystem and classified them, you will have taken the first step toward building your customer retention strategy, with a goal of effectively preventing customer extinction and encouraging the survival of the fittest.