Retaining your profitable customers

Today’s businesses face a lot of pressures. Last month (September 2009), the Institute of Direct Marketing in the UK reported that ‘over a third of businesses in Europe now view customer retention as a major concern’.

The recent economic downturn is no longer deniable for most businesses and this is placing more emphasis on retaining existing customers than on attracting new clients. When it is eight to ten times more cost effective to keep an existing customer than it is to acquire a new one, companies are justified in devoting increasingly more resources to customer retention programmes.

Overseas research has seen a trend towards a data-driven approach to customer retention, with ‘68% of firms planning to compile and analyse data from consumers in order to provide them with better targeted promotions and construct improved relationships’. Some New Zealand companies are paving the way for this trend locally.

However, in the general business cycle of customer acquisition and loss, retention initiatives can seem elusive and easier said than done.

Retention strategies should be focused on those customers who are most valuable to your business. It makes sense to allocate additional resources to retain customers who have returned your investment in them, or will do so in the future and focusing on these customers will provide the largest positive result.

By completing a profitability analysis for customer segments, you can identify those worth cultivating and see which ones might not be worth the effort.

Datamine has developed a practical approach to approximating value. This approach allows businesses to understand the relative value of a customer by category, and begin to focus on those that will provide the biggest gains. You may even find that some are costing you money!