Multichannel Success Podcast series

Season 1 Episode 1 - Customer Retention - Transcript

#### David Worby

Hello and welcome to our podcast series on how to drive multi-channel success. In this series, we're looking to explore a range of issues which you and your business are faced with every day. Three of us from Prospero and The Multi-Channel Expert have pooled our expertise and experience of working with many brands over the last 20 years to come up with a set of practical suggestions and ideas that will help you deliver greater success in your e-commerce business. We really hope you find the discussion useful and we look forward to your feedback.

In today's episode, we're going to explore one of the key drivers of success in today's multi-channel world, the subject of customer

retention.

I'm delighted that today we've got two guests joining us. We've got David Kohn from The Multi-Channel Expert and Mark Pinkerton from Prospero. Welcome to you both.

#### Mark Pinkerton

Hello, I'm Mark.

#### David Kohn

And I'm David from the Multi-Channel Expert.

#### David Worby

You're both welcome. Thanks for joining us today. Let's start, if we may, with one of the kind of easy questions around customer retention. Can you give me your sense of what customer retention is all about?

#### David Kohn

Yes, I'll pick that one up. I mean, for me, customer retention is about the

percent of spend that you get in your category. It's about maximizing the

proportion of your customer's basket and your customer's share of mind that

you're able to extract from them. So, for example, if you're a shoe retailer and your customer spends a thousand pounds on shoes in a year, you want to get the highest possible proportion of that thousand pounds. And you don't just want it this year, you want it next year and the year after and the year after. That, for me, is what customer retention is. That, for me, is what customer loyalty is.

#### Mark Pinkerton

And from a, I guess, from a technical perspective, because we help a number of clients out with customer attention, we often have to help them calculate it, so the technical definition is the percentage of customers who bought last year who then buy this year, and that's the sort of generic definition, it will depend on the product or the service that people offer.

#### David Worby

Why is loyalty important, David?

#### David Kohn

To put it simply the cost of customer acquisition have gone up and continue to go up. All of the channels that you use to acquire new customers are becoming more expensive and I think that will become even more so with the new privacy regulations. So clearly if you've got a body of people that have shopped with you before, if you've got information and data on those customers it's going to be cheaper for you to talk to those customers and to get the spend of those customers than it is for you to attract new customers.

#### David Worby

Mark, what's your perspective on that?

#### Mark Pinkerton

Yeah, very similar. The new customer acquisition costs are 7, 8, 9, 10 times the cost of actually extracting more orders from your existing customer base. And it's also a very good indicator of the success of the company to look at the customer attention that they get. If you don't have somewhere between a quarter and a third of your sales going to your existing customers in the normal course of events, there will always be exceptions, then you start to have trouble because the cost of acquisition is going to be so high that your marketing spend is going to be exponentially higher and therefore your cost of actually generating those sales is going to be discounted.

#### David Worby

Lets touch on the concept of loyalty and the degree to which we think it's relevant and it works but I think for the definitions here loyalty is not a scheme loyalty is a is a concept that binds party A to party B. In that context do we think there is loyalty in the market?

#### David Kohn

Yes, for sure. I think there are plenty of brands that either we as customers or other people will spend the bulk of their time, energy and money. Let's take our phones. We're either loyal to Android or we're loyal to Apple. In retail, it's a little harder to come by, I think, but there are plenty of retailers that each of us will know and be associated with where customers will spend the bulk of the money that they spend in any given year with a specific retailer because it fits their requirements, because it does what they want it to do for them. In my particular instance, I'm a big fan of Amazon. It's not a popular thing to say in retail because they compete with almost everybody, but whenever I've got anything that's a trivial expense, I will buy it from Amazon. More serious, I'll go elsewhere, but I find I'm tremendously loyal to the arch enemy.

#### David Worby

And do you guys think that loyalty as a concept, if it exists, which maybe we think it does, differs by sector? Or, you know, is there loyalty in buying a bag of sprouts relative to buying an investment purchase like a car? Do we think that there's,the shades of grey there, Mark?

#### Mark Pinkerton

I'm not sure the shades of grey but certainly loyalty does exist I mean you

can have families who have bought one brand of car for their entire lifetime you know they've always bought Fords or they've always bought Renault.

#### David Worby

And I guess it might be true then that if you compare maybe UK grocery

retailing with non-grocery retailing as an example, loyalty might circle

around value being a greater component of loyalty in some elements, would that be true? Yes.

#### Mark Pinkerton

Yes, I mean frequency of purchase or natural frequency of purchase will be a key part of the whole retention piece so it's a lot easier to have a good understanding of how well you're retaining clients if people shop with you every week for supermarket shops and you may even get to understand the degree to which you maximise share of wallet from that customer as David said earlier. Where you have a product where the natural cycle is that you're going to buy one rucksack every 15 years or one car every 6 years, it's going to be much harder to actually understand the likelihood of retention for those people.

#### David Kohn

Yes, I think my previous retail experience was with Heals. Frequency of

purchase is incredibly low. Nevertheless, we would still like to

think that customers had a level of loyalty and a level of engagement with us. And by that, I would mean that if they were looking for furniture, we would be one of the brands, if not the brand, where they would start their search and start their purchase journey. So I think it is possible to develop retention. I think it is possible to develop loyalty if you're an infrequent purchase retailer. It's a little more difficult to measure it, but it doesn't stop you from trying to achieve it.

#### David Worby

Okay, so in a minute we're going to come on to our panel's views on some of

the tools and techniques that you might use and some of the avenues of

thinking. But maybe we can just give them, in the next segment, a sense of who we think does it well. Clearly we don't know retention rates amongst

necessarily the market, but as customers we have a sense of who we think does a great job of retaining us as customers. So who would you pick out and why?

David, who would you pick out from your list?

#### David Kohn

Yeah, so what I'm looking for when I'm thinking of companies that succeed in customer retention and customer loyalty is does their proposition work and does it work consistently? So whether it's the product, whether it's the service, is it something that they are delivering time and time again in every interaction that you have with that brand? So if I were to take a nice premium brand that I think does a great job and has managed to develop a proposition which is very much around retention, we could take the clothing brand Spoke.

Some people may not have heard of this brand, but what they produce is

effectively trousers that will fit. They sell other clothes, but they sell

trousers that will fit. Once you've discovered your size, to me that delivers the essence of what drives customer retention, which is a brand and a product that delivers what it says it will deliver and it delivers it time and time

again.

#### David Worby

Mark, have you got one you particularly like?

#### Mark Pinkerton

Well my personal favourite would be Rafa, where their whole ethos of Rafa was to get as many people cycling as possible, not just about the racing world, but that was very much used to generate a community around cycling and they certainly went down the route of having cafes and everything so you could really buy into the Rafa lifestyle at one stage. And as long as that. fit of the product works with the life stage and the activities of the customer, there's no reason for people to go elsewhere. It's when those things go slightly out of kilter that the retention rates may start to drop.

#### David Worby

Both great brands, Stoke and Rafa.

#### David Kohn

I think another brand, we've talked about relatively premium brands there, but I think you don't have to look much further than Aldi for another brand which does incredibly well with customer retention. And it may not be the best example for this podcast because it's not a particularly digital brand, but again, here you've got a brand that says we are going to deliver good quality at an amazing price. They deliver it week in, week out, without failure. Imagine their customer loyalty is about as high as any brand in their sector.

#### David Worby

a great brand, and one of our clients, so we're happy to have them on the

list. Excellent. Okay, well there's some exemplars, and of course there are

millions more, and after this podcast, if anybody wants to know any more, please just give us a shout and we'll have a secondary conversation. But let's move on now to some of our advice to some of the people listening about the things that they should be thinking about when either measuring and setting up a retention metric or scheme, or trying to optimize one that

may already exist. We heard earlier how expensive it is to acquire new

customers, and the old adage is probably more true now than ever, that the best customers you're ever going to have are probably the ones you've already got.

So in developing mechanisms to retain the ones you've got, let's talk about measurement first. First question, what should the guys listening be measuring in order to know where they are on the customer retention scale?

#### Mark Pinkerton

Well the first thing they really need to have a core understanding of is what is the customer retention that they actually have and that is a relatively simple calculation of how many people bought last year and then how many people bought this year and the percentage of those who bought previously who bought this year is your customer retention.

#### David Worby

Now, David, I know you have some concerns about the challenges of the standard measure, particularly with some of the clients you've worked with in the past. How does that unfold?

#### David Kohn

Well, the key issue for me would be level of customer satisfaction and I think you almost have to make it a religion in your business to really understand both quantitatively and more important qualitatively what the level of satisfaction your customers have with you. With Heels and Snow and Rock, the weekly customer satisfaction statistics were delivered to the board first thing on a Monday morning, even before we delivered the sales. We probably had a bit of a tendency to focus on the negatives as opposed to the positives, but we could see with the negatives there were things to change. But literally every negative review was reported pretty well in full to the board. Now I think arguably that's a little bit reactive, but I don't think you can underestimate the value of digging into why your customers feel about you in the way they feel about you. Most of us think it's a bit nebulous to do so, but it really isn't nebulous talking to your customers.

#### David Worby

So if that's how we measure the success of our ventures in the world of

customer retention, what tools do we need? So I'm sure there'll be many people listening to this podcast who've got something, they've probably got some tools, but maybe some people who are just starting their journey. What things do they need to bind themselves to in order to be effective at running a positive customer retention campaign? I'm going to come to Mark first.

#### Mark Pinkerton

I mean the killer tool in terms of customer attention is email and the

percentage of sales that you can generate through email and whilst that varies by sector, it should be a very significant proportion of your total sales, certainly of your repurchase rate. It's all about that journey of trying to align the outcome of what you do with the customer outcome. It's not necessarily about the short term resale rate, although that has to be

important.

#### David Worby

David K, what's your view on segmentation? It's a word often used in the CRM world and probably can mean many different things, but where's your mind at with segmentation and its value?

#### David Kohn

I think the value of segmentation very much depends on the type of business

that you are and also, to be honest, the size of business that you are and the amount of resource that you have available. If I take that issue first, Heals, we had a very small team, Snow and Rock, we had a very small team. So if we'd come up with a seven, eight segment strategy, we simply wouldn't have been able to come up with seven or eight different bits of content to satisfy those segments. But within our business, there were certain identifiable differences between the customer groups that we were selling to and within the product groups that we were selling. At its simplest form, if we were to look at Snow and Rock, if you're a winter sports customer versus if you're a hiker and a walker, we are not going to send you the same email. So that's a case of looking at your business and saying, what are the distinguishable parts of our offer and the distinguishable customer groupings? And is it worthwhile putting

the effort into creating different pieces of content for them? If you're a

business that has multiple, then you want multiple segments. One thing I would say is that in a lot of businesses, more effort is put into segmentation than is warranted.

The one area I would really focus on, if I was any business listening to this, is triggered emails. Once somebody is in the buying process, that is when they are of the highest value to you. Let's give you a context here. If you were at Heals and I knew that you'd bought a sofa three years ago, how much use is that to me really? But if I capture you on the website, if I capture you opening an email that's about sofas, if I capture you searching for velvet sofas, gosh, that's incredibly valuable to me. And so if I can create a piece of marketing, if I can create an email program around that behavior now, that's of incredible value. And that purchase journey, those triggered emails, I would suggest anybody listening, that would be almost the first place I would start if I'm looking at this channel.

#### Mark Pinkerton

Don't forget to like and subscribe! to be about the place in the customer

journey that somebody is, rather than the segment in which they're placed.

#### David Worby

And that sounds like you're hitting the point at which they're absolutely

hottest. Correct. They've got something really relevant or something really attuned to their way of thinking at the moment, and you're going to hit that moment.

#### David Kohn

It's called something. Correct, yes, as you say, I like the phrase, where

they're hottest, yeah? If I've got a piece of information about you that

relates to two or three years ago, about something you did then, if you're not looking for sofas now, I'm guessing. But if I find you now, if I notice that today you made that search, then I really do know something that's relevant and is now, as opposed to guessing what you might be thinking.

#### Mark Pinkerton

And in an ideal world, if you had known that that customer had come in and

viewed a sofa in store, then Bob's your uncle.

#### David Kohn

That, to some extent, is the holy grail, but yes, if we can start chipping

people and measuring

#### Mark Pinkerton

Cheating, that's another lesson.

#### David Kohn

exactly what they've visited in our shops, absolutely brilliant.

#### David Worby

Okay, now one of the other elements to being able to conduct triggered emails or indeed levels of segmentation, notwithstanding having small teams that can't do everything, is the skills they need. And data is a word that's been popular for some years. What kind of skills do people need to have, Mark, when it comes to managing and using data?

#### Mark Pinkerton

I mean clearly you need to have one of your team members or one of your

outsourced partners able to provide the data skills. We're not talking data

science levels of skills for the vast majority of people, but able to take say two databases and merge the results of those two databases together to get some insight on to what customer behaviour is happening is important. But in some cases with basic sort of web analytics skills, once the process is set up, the interpretation of that data should be capable of being done in-house by the marketing or the e-com people. Similarly generating content and the ability to write content stories should not be underestimated. That is a skill, we've probably all tried it in our various past and histories, and it is not that easy to do in a way that is engaging with customers at the right stage of their customer journey.

#### David Kohn

Yeah, I think picking on the subject of content, again, I touched before on

how you can only have as many segments as you've got the capability to create content for those segments. I wrote recently for Internet Retailing about what impact I felt ChatGPT would have on the content industry. My view is there will still be a critically important role for humans and for the real insight into the human mindset that you can, well, I'm saying you can only really get from humans, but the creativity that enables you to cut through. For me, the content piece is utterly critical to customer attention. It's utterly critical, this concept that you're not just selling a product, you're selling a solution. You're selling something which is bigger than the product or service that you sell. You're selling something that will enhance your customer's life. And content is such an important part of, A, bringing that to life, B, making your communications meaningful. If you are going to have segments, if you are going to run triggered campaigns, even if you're just going to run batch and blast, you've got to produce content that people get some value out of. That's the trade-off for you signing up to the newsletter. That's the trade-off for them opening it. That's the trade-off for them not unsubscribing. You have to provide them with something which is either useful or educational or entertaining or delivers some value. That is about content. And for me, and particularly for a lot of the small, medium-sized businesses, is the area that you should be seriously thinking about your level of capability and your level of investment.

#### David Worby

Great. Now, before we come on to what might end up being our kind of

penultimate segment here about loyalty schemes, I just wanted Mark to

pick up on something that you mentioned earlier that I think aligns to that

part of our conversation. It's how does a business think about aligning its

outcomes to those of a customer? Can you just explain that a little bit to us?

#### Mark Pinkerton

Yeah, so in I guess more mature customer focused organisations, the key thing is to make sure that what you are doing or what you are selling aligns to the customer outcome. So it's the classic thing of I don't necessarily want to buy a lawnmower, I want to have my grass cut, it's understanding the difference between those two. And by making sure that you are not just selling something but you are saying I understand why you bought this product and what you are going to do with this product and therefore my success is aligned with your success, that is the best possible way to get customer loyalty and customer attention.

#### David Worby

Okay, I mentioned it. We've used the word loyalty quite a lot

in this podcast and I think we've used it with the small l rather than the

capital L. But in our penultimate section I'd just like to touch on the

panel's view of how important loyalty schemes are. There'll be many people

listening who've got loyalty schemes. Doubtless there'll be people thinking

some of them are working and some of them are not working and there'll

probably be people who don't have a loyalty scheme. So I guess my question to the panel is, are loyalty schemes important? And if you haven't got one, do you need to get one?

#### David Kohn

Well, in a word, you do not need one, okay? If your proposition is strong

enough, and if Mark says if what you're doing aligns with what the customer

ultimately wants to get from your product or service, then you do not need

one. And indeed, if your product or service is not aligned with what the

customer wants, no amount of loyalty scheme or marketing is going to pay for

over the cracks. There are, however, circumstances in which a loyalty scheme may create an advantage, where the benefits of it might outweigh the costs. If you have a high frequency of purchase, for example, it may be that introducing a loyalty scheme is something which causes the customer to favor you over the competition. If you've got limited differentiation in your market, i.e. where you're selling something which is similar to what somebody else is selling, similarly, it may be the thing that just creates the difference. But for me, it's fundamentally going to drive a marginal difference, and it's something where you are going to have to make that judgment as to whether or not the benefits that you get from incentivizing customers in that way are sufficient to outweigh the costs of running it.

#### David Worby

So ultimately a loyalty scheme is not a panacea to great CR activity, it's one component only.

#### Mark Pinkerton

Yes, it's one component. It can help boost sales short-term because you can

make offers to your existing clients without necessarily making the offer out into the wider market. So that will engender loyalty. But also, it may just be a thank you to people who are your loyal customers. They can work from that point of view. You would argue that the free coffee and waitrose for cardholders is one of those. And there was a lot of negative press when they got rid of it for a while. And now they've brought it back.

#### David Kohn

Yeah, I think just picking up on what Mark said, one of the things I would say you should seriously be thinking about is how you treat your VIPs. Every retailer has VIPs, they're the customers that account for the greater

proportion of their spend. And I do think it's valuable to treat them as

though they're special, whether that's via rewards, whether that's via special access to product, whether it's via content or whether it's via the letter from the CEO. So if there was one area where I was going to recommend you focus, whether you call it a loyalty scheme, whether you call it something else, it would be on really understanding how you nurture your VIPs, how you make them spend more with you, how you make them advocates.

#### Mark Pinkerton

But there is of course an inherent value to the retailer or brand in having a loyalty scheme. So it's not to say necessarily from a customer perspective how much value that will bring, but from the retailer point of view is that they get more data. And the more data points they understand about you, the better insight that they can generate and therefore the better they can tailor the products that they are offering to you. Long-term whether or not that adds significant value in terms of increased profit and increased share of wallet I think is debatable. I think we've all seen retailers where it doesn't work and occasionally we've seen retailers that it does work in. So data and being able to do something with the data, as David points from earlier, you've got to be able to do something with the insight that you can get out of that data and if you're not going to do anything fundamentally different as a result of having that data then what's the point.

#### David Worby

Guys, we're nearly at the end but I think as a way of wrapping up, if our listeners want one thing to do or one thing to think about or one thing to kind of reflect upon in these last few moments of our podcast, what would your recommendation be? David first.

#### David Kohn

For me, it's make it as human as possible. Make person-to-person connections. Most of us aren't multi-billion pound businesses where that becomes impractical. So find ways that you can connect your people to your customers. The more you can do that, the more engagement, the more connection they will have, and the more likely they are to be retained.

#### Mark Pinkerton

I would say start tracking customer attention as a KPI, make sure that people across the business understand it and expose it across the organisation.

#### David Worby

Fabulous, well, thank you. Thank you to Mark and to David for their insights today. And thank you to you for listening. We hope you'll join us again on the next episode

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