Marketing dollars shift toward customer retention

A tightening economy will shift marketing spending away from customer acquisition toward customer retention, says Forrester Research – yet online marketers are still just figuring out which online tools and programs work to increase loyalty, and half of them don’t track yet specific return on investment in their loyalty-building initiatives.

A new Forrester report defines customer loyalty as behaviors and attitudes that increase revenues for marketers while decreasing costs, but the effectiveness of various marketing tools aimed at those objectives varies widely. In a survey of online and traditional marketers, Forrester found that targeted e-mails are the promotions most often used to promote loyalty; 64% of those surveyed used them and rated their effectiveness highly at 3.8 on a scale of 5. A total of 38% of the marketers use price discounts and free merchandise to promote loyalty, rating their effectiveness at 3.3 and 3.0, respectively. Customer surveys were rated the most effective retention tool at 3.9 on the 5-point scale, but they were used by only 30% of those surveyed. Buyer’s clubs, rated the least effective at 2.8, were used by only 22% of the marketers.

The marketers also used different factors to identify and rate loyalty among their customers. A total of 74% identified loyal customers in terms of repeat buyers, while 68% recognized the tenure of customers, 68% counted growth in purchase size over time, and 62% recognized repeat visits, among other indicators.

To increase customer loyalty, marketers should quantify specific behaviors and attitudes, such as number of times the customer returns to the site or store, and actions the customer takes on site or in store, identify those that most increase revenues and decrease costs, and create programs that reward and encourage them. Building customer loyalty is a process and not a static goal, says Forrester analyst Shar VanBoshkirk. “Customers don’t become loyal after a certain tenure or because of a specific marketing campaign – loyalty-like behaviors and attitudes exist, to a certain degree, in all customers. The attitudes and behaviors cultivate each other in an ongoing process,” she says.