Posts tagged #Retention

Direct Marketing Principle: Retention Begins with Acquisition

A number of years ago I was interviewing for what I thought was my dream job until the hiring manager made this statement.

"Whatever you learned as a direct marketer 10 years ago has no value today."

It was then clear that he did not understand that the scientific methods and principles gleaned over the years by direct marketers do not change. They only apply to different circumstances.

From time to time, I will elaborate on some of these undying principles that impact the ROI regardless of the channel used.

Ignoring these principles magnifies your losses due to the complexities brought on by today’s multichannel strategies.

About twenty-five years ago, I learned a valuable lesson about retention from the credit card industry.

At that time, credit cards were beginning to proliferate the landscape. Every store, airline, bank and consumer business wanted its customers to use their card.

Billfolds were bulging with ten or more credit cards. It was more than consumers could deal with. They gradually began to use only three or four cards ignoring the others in their possession. Even high value offers no longer worked as they once did to incite card use.

My client at the time had over 800,000 accounts but only 300,000 had used their cards to purchase products from them. They were concerned that the card applicants were not using their card.

We tested multiple offers to encourage repeat use of their credit card. After two years, we had spent a lot of money while generating little incremental card use or income. We managed to increase use by about 10%, but there was no repeat business to speak of when the special offers ceased.

So we decided that we could not solve the problem with offers or membership schemes.

We began to realize that these credit card holders had simply completed an application to get their card. So how could we solve this problem and earn repeat card usage?

We then tested offering a new card by charging a small up front fee in exchange for special discount notices and other exclusive membership offers. We believed the up front fee was a harder sell than a free card, but charging a fee attracted a more loyal audience who knew that their small up front fee offered special member benefits.

After some time it became clear that these cards holders were not only customers but were now credit card customers as well. 

This solved the retention issue and card usage increased dramatically.

What did we learn? We learned that customers must pay something to demonstrate their commitment to the card.

The principle is clear. Get some form of commitment from your customers up front to retain them over the long term.

This same principle applies to fundraising. Donors who initially give $5 through the mail rarely give more than once. They have no lifetime value.

Those giving $10-$20 or more are much more likely than $5 donors to give again.

Customers who make their initial purchase based on a deep sale or contest entry have little long-term value. Poor retention becomes an albatross around your neck.

Understanding and applying this principle will keep you from building a house of cards 

So that is why retention begins with acquisition.

What is your experience with this in your direct marketing efforts?

Posted on July 11, 2011 and filed under Direct Marketing Strategy.