First Published: 12 September, 2024
"With so much misinformation, it’s little wonder the under-pressure marketer is confused. This quick-read strings together a statistical avalanche of facts and figures to enable clarity to what’s truly important in a down economy.”
As the saying goes, “hard times reveal your true friends.” With New Zealand enduring a double-dip recession in recent months, consumers are feeling the pinch, re-evaluating every purchasing decision to combat what’s been termed as a “cost of living crisis.”
Households are facing escalating everyday costs across groceries, energy, fuel, rent, mortgage repayments and more. All while real salary and wages stagnate and unemployment rises. When consumers spend less, businesses suffer and go into damage control, looking to rationalize operational expenditure.
Every organisation is examining operating costs and seeking across-the-board savings. Marketing is not immune and is a key area of scrutiny as boards and exec teams seek to constrain costs to just the bare necessities.
In the corridors, we hear the need for “20% cuts in marketing.”
Is this wise? Isn’t marketing the lifeblood for growth? Marketers will classically seek to maintain investment on share of voice during tough times, knowing full-well that going dark will necessitate larger investments in time to light up again (HBR “Roaring Out of Recession”).
But should maintaining share of voice be pursued at the expense of reducing focus on customer comms? Given a need to concentrate budget, this might sound logical at first but with the facts examined, there’s a stronger argument for customer marketing to be the very top of the pile of investment priority.
“As the impacts of recessionary times chew into your marketing budgets, it’s time to reward your customers and watch them repay the friendship through their continued and growing loyalty.”
It’s well-established that companies have a greater focus on customer acquisition versus retention (44% vs. 18%). Yet 82% of companies agree that retention drives better ROI than acquisition (eConsultancy). Meanwhile, a study by Wharton Business School shows increased advertising spend lifts revenue for just one in three established products.
These statistics present a disconnect between spend and performance.
Do we cynically conclude brand building and acquisition marketing are tactics designed to act as a sugar hit to the career marketer, interested in building fame and glory over results?
Decades of research prove the most effective marketing is in retaining, growing and deepening the connection with existing customers. The probability of selling to an existing customer is 60-70%, while contrastingly, the probability of selling to a new prospect is 5-20% (SmartInsights). It’s no surprise then, that customer acquisition is 5 times more costly than customer retention (Forrester).
All of this while data conclusively shows brands invest less than 20% overall marketing to retention. According to Customer Marketing Alliance, 61% of marketers say customer marketing makes up less than 10% of the total marketing budget, while 30% said their budget made up just 11-20%.
The statistical argument is a landslide. It all makes intuitive sense too. Think about it, we buy stuff we know from people we know. And we buy more from people we like and trust.
Marketing to existing customers is good for the bottom line. A study by Bain and Co. shows increasing customer retention rates by just 5% increases profits anywhere from 25% to 95%.
Returning customers tend to grow in value, buying more from a company over time. As they do, your operating costs to serve them decline. Customers familiar with products or services will spend less time having your team onboard or troubleshoot for them. What’s more, return customers will often be prepared to pay a premium to continue doing business with you, rather than switch to a competitor, with whom they’re neither familiar nor comfortable. And they are advocates, referring new customers to your company.
The argument for an increased focus on retention is imbalanced without acknowledging brands in high growth mode lack critical mass in their base to rely on retention. Similarly, today’s frequent customers are not necessarily the frequent customers of tomorrow.
The truth is you can’t run a successful business without acquiring new customers, but it’s also true most organisations are comparatively over investing in acquisition marketing - both in digital product development and brand-centric advertising.
Brands are often over-focused on acquisition, seeking self-gratification and glory at a great cost - foregoing the more viable return on offer through effective customer management.
When you’re under pressure to perform, it’s a smart move to invest in your existing customers, turning them from one-time users to frequent users, and then from frequent to loyal. But exactly how do you do that?
Firstly, look at the budgets you have. Could you redirect a further 10% of the total marketing budget to customer re-engagement, retention and loyalty?
What outcome would you expect from that budget shift? Near-term revenue and profit are sufficient barometers of performance. As Tom Peters says, “What gets measured, gets done.” So, begin with a focus on shifting desired customer profitability outcomes.
Pushing customers to re-engage in your platforms to attain maximum Share of Wallet while increasing Average Revenue Per Unit (ARPRU) are great proof points to monitor.
Consistently calculate customer retention rates, analyse and optimise your progress over time to ensure you’re moving the needle in the right direction. And never stop testing and optimising!
So, what do we think now? With all the evidence considered, it’s plain to see all forms of marketing are not created equally, as indeed all customers are not created equally.
Marketing tactics to known customers through owned channels avoid the outlay and risk of expensive media, while ring-fencing the individuals already pre-disposed to purchasing from your brand.
"Don't throw the baby out with the bathwater."
The wise marketer will not make a blanket cut to marketing spend. Instead, they will carefully consider which branches of marketing to reduce, what to maintain and in the case of customer marketing activity, what they may increase, to hit what are undoubtedly challenging KPI’s.
I’ve been known to gamble on occasion. When I do, I’d be looking for past performance to be a predictor for future performance, expecting bets on customer retention, re-engagement and loyalty to deliver the best return on investment.
Back to my earlier consideration -
"Could you redirect a further 10% of the total marketing resources to customer re-engagement, retention and loyalty? Would it be reasonable to expect this to drive a better financial outcome?"
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