Price promotion? 20% (probably more, but you get the point)
Loyalty program? 20%
Recognition? 20%
Special event? 20%
Early access to new releases? 20%

The list goes on. A few get more, many get less, but 20% is a good rule of thumb. Why 20%? Hard to say, but that’s what the data says.

The takeaways?
1) Incorporate as many interesting ideas as you can manage effectively, since each will produce results. But don’t stretch too thin, or all of them will drop off.
2) Choose ideas that do not overlap, to ensure maximum return and responsiveness.
3) Budget has an impact, no doubt. Stack ranking from cheapest to most expensive isn’t a bad idea.

There’s a whole separate group of initiatives that only 1% will respond to…that’s for a later post.

As with most interviews, some stuff comes out that wasn’t planned ahead of time. But what stuck with me were my comments to focus on just a few social media/marketing options vs. going after many. So I wanted to expound a bit.

Many companies are paralyzed by social media and how it relates to customer retention. Like anything else, start simple. Pick one area and start, learning more and determining how to incorporate the results into daily operations. Over time, the relationship between actions and results will become clearer, and you can make the business case for increased (or decreased) investment.

Once you master one, add another and go through the same process. It doesn’t have to be difficult. What seems to cause so much uncertainty is the proliferation of options that all appeared at once. So my guidance is to simplify, start narrow, and expand over time.

I think my point didn’t really get across, but its mostly my fault.  The bigger point here is the separation between loyalty and value, and that customer experience is a great driver of loyalty, which in turn improves value.  Since this is part of a longer series of columns that will eventually tie together, I’ll back and rethink this one.

“It’s inevitable that customers leave.  Your customer base is constantly evolving, and your customer loyalty and retention metrics likely hide that natural dynamic. Traditional measures look at full attrition and ignore shrinkage, maintenance, and growth. Savvy companies look deeper and respond to incremental behavior changes within their customer base.

The two measures presented below, dollar retention rate and replacement rate, let you spot issues in your retention and customer development efforts early and focus your decision making on the results you really want – revenue and profit.”

Read the full article at Chief Marketer.

This was prompted by internal research we’ve been doing to identify trends in customer behavior that can help predict larger shifts in revenue in the future.  We’ve found a lot of interesting stuff and spun off many ideas, of which this was one.

The authors rightly point out that usually only 20% of customers are profitable.  But its not that simple, since what matters is the marginal profitability of the last dollar sold.  You have to cover those fixed costs somehow.

A different interpretation of the tactic they criticize might be:

Resources are limited, so focus on the most profitable customers.  If you have the resources to focus on unprofitable customers too, go for it, since they help cover fixed costs.  But try to allocate your overall resources based on potential for future profitability, not evenly across all customers.  Only when you are totally out of time, creativity, and employee bandwidth should you shift to pure price promotion.

A good first lesson in retention ROI is to understand that the first chunk of investment will have a high ROI, pretty much no matter what you do.  After that, channeling investment into the right interactions with the right customers is the key.  And unlike most marketing expense, you can figure out the right way to manage this second chunk of investment pretty quickly.

Now this is very apples-to-oranges, since the investment needed to achieve these 3 different 10% improvements vary widely. But the basic point that translates a 1% retention improvement to a 3% customer value improvement is the important one. Generally if your company has not put much effort into customer retention, you can see big improvements without a large investment. So do the math – what would a 3% improvement in customer value do for your company’s bottom line? And compare that with the cost to deliver the first 1% improvement in retention. Chances are that ROI looks pretty impressive.

I’ll explore this some more in the coming days, including some investigation of where the dollars and attention are going today and why.  My goal is to build the case for investing in customer retention before ANYTHING else.  Stay tuned.

Check it out: http://www.virginamerica.com/va/home.do

This column touches on the power of recognition, the value of real interaction, the retaining power of collaboration (and the low cost content it can provide), and includes a push to enable advocacy by your customers.