In 1906, Vilfredo Pareto made the famous observation that just 20% of the Italian population owned 80% of the property. He found this peculiar, and so investigated it further while in the University of Lausanne in France. In 1909, he released the Pareto index which showed that this inequality in distribution carried “through any human, society, at any age or income.”
He was commended by the Adam Smith Society for his work in economics. And then…everyone forgot about Vilfredo and his ideas.
That is, until 1941 when management consultant Joseph M. Juran revived Pareto’s research to great effect.
Turns out, the Pareto principle is pinpoint when it comes to business models, not just wealth distribution. These days, the 80-20 rule is a very significant business statistic and is taken as truth.
80% of your results will come from 20% of your efforts.
And it’s confirmed by recent customer lifecycle studies. Such as Gartner Group and authors Emmett C. Murphy and Mark A. Murphy in their book “Leading on the Edge of Chaos”:
80% of your future profits will come from just 20% of your existing customers.
Turns out Pareto uncovered a truly golden rule of human economics. What does this mean for customer lifecycles and for your business?
It’s time to emphasize customer loyalty. It’s time to invest resources in retaining your best customer instead of spending your budget on acquiring new customers. Why?
Acquiring new customers costs 5 to 25 times more than it takes to retain one, according to HBR. Yes, loyal customers will spend more money over longer and have radiating positive impacts upon your brand culture and your bottom line.
As an RJ Metrics study found:
Your loyal top 10% spend 3 times more per order than the lower 90%; and your top 1% of customers spend 5 times more than the lower 90%.
But like Pareto’s rule, these stats are nothing new. But this post is going to show you nine surprising statistics about customer lifecycles you’ve not seen yet. And we’re going to examine how you can fuse customer loyalty with lifecycle marketing to make sure you’re focusing on the 20% who make these stats a reality in your organization.
Why Merging Lifecycle Marketing and Customer Loyalty Is Key
“The key to success in CLM is behind optimising for Customer Lifetime Value (CLV) and not conversion rate (CR) or revenue per visit (RPV). This is not to say conversion rate doesn’t have its place – it’s a very important metric in the right scenario. However the hierarchy is what is important. CLV trumps all others as a metric for long term profitability.”
–Edward Gotham, Ometria
We’re all trying to acquire and activate and retain customers, yet it’s easy to focus on the minutiae of the marketing process and get bogged down in marketing data. Customer retention with loyalty at the forefront yields the highest revenues and best brand experience – but often doesn’t show immediate ROI. Over time however, using incentives and customer service to grow and retain quality customers leads to loyal buyers with a long lifecycle.
“80% of companies’ marketing budgets are spent on acquiring shoppers; however, for every 1% of shoppers who become repeat customers, a company’s revenue will increase by about 10%.”
This means creating loyal customers, one at a time. How can you do this? Keep to an ‘always on’ approach to the customer journey across all devices, channels, and optimise messaging for this long-view approach across touchpoints. Every team needs to be on the same page, knowing that loyal customers and not just conversions or acquisitions are the goal. Long term revenue from retention is the new essential metric for brands going into 2017.
Here’s a loyalty-centric customer lifecycle process:
- Claim consumer’s attention
- Bring them into your sphere of influence
- Convert them into a paying customer
- Keep them as a customer
- Turn them into a company advocate
Ongoing engagement throughout the customer lifecycle is essential to retention efforts and increasing the customer lifetime value. After the prospect has funneled through, what principles and best practices will guide your customer communications? What can your brand do to effectively influence your customers to broaden their relationship and increase loyalty and advocacy?
Whatever your tactics, try to balance a comprehensive communications strategy. Think about splitting your messaging between marketing communications and customer service communications. After all, no one wants to be sold to all the time.
An integrated strategy of selling and support will deliver the best value to your customers. Distribute best practices, tips, case studies, and other valuable content through a newsletter but also through relevant channels that your customer segment will appreciate. Delivering messaging that’s relevant, timely and valuable is the way to maintain customer engagement and push towards loyalty.
How to Ensure Loyalty and a Long Customer Lifecycle
“It’s important to recognize that Lifecycle Marketing isn’t just about sending messages customers might like — it’s about positively influencing their behavior.”
–Anthony Nygren, EMI Strategic Marketing
“68% of customers leave because they perceive that you are indifferent to them.”
Brand loyalty is an emotional commitment. To achieve customer loyalty, brands must make it worthwhile for consumers to side with them instead of defecting to competitors. While it’s costly in terms of time and effort to search for a new company, feeling unvalued in a relationship is never sustainable. Top brands spend the extra effort to show customers that their money is well spent – and in turn get the rewards.
“A 5% reduction in customer defection rate yields a 25% – 125% increase in profitability.”
The first step against indifference is good branding. Effectively sharing your companies stories and values in a familiar, branded tone is the best way to establish a long-term customer relationship. Watch Simon Sinek’s TED Talk “Start with Why” if you’d like a refresher on this. Reaffirming shared values through messaging breeds a sense of trust that is essential in creating loyalty and advocacy. It’s also foundational to a sustainable and rewarding customer experience.
“Companies that prioritize the customer experience generate 60% higher profits than their competitors.”
Beyond customer service, a seamless brand experience ensures a winning customer experience. Today’s consumers expects top-notch functionality and convenience from companies. Whether it’s a blazing fast web page, one-click CTAs, pre-filled forms, loyalty programs, social media presence, gamification, referral programs – it’s “expanded” brand that earns more satisfied customers. Why? Because customers are looking to expand their brand relationships after the initial purchase.
“After 10 purchases, you refer 50% more people than a one-time purchaser.”
–Bain & Company
Utilizing referral and loyalty programs is especially effective for brands looking to engage with their best customers, promote repeat purchasing, and also attracting new users. The consumer psychology behind social proof tells us that consumers trust each other especially when it comes to purchasing recommendations.
“A commitment to customer experience results in up to 25% more customer retention and revenue than sales or marketing initiatives.”
What’s the most powerful way to improve customer experience?
If you said personalization, you’re right on the money. Personalized messaging recognizes customers as individuals, making your efforts more effective. Customers will appreciate the personal touch, so long as you’re not bombarding them with irrelevant messaging. They’ll also love having their experiences tailored to their preferences, such as receiving messaging across their favorite platform and seeing their name on screen. Your CRM offers segmented sections that should decrease outreach misfires and improve accuracy for targeting the right customers based on demographic factors. Blanket offers and messaging just won’t cut it.
“A 5% increase in customer retention can increase a company’s profitability by 75%.”
–Bain & Company
Commit to amazing customer service. You want always to be an expert – in content, product, and service. To appear as so, set expectations low and exceed them. If your response time is stated within the hour and you respond in under five minutes, you’ll look like a rockstar. Using chatbots is a great way to resolve headaches and display your attentiveness to buyer’s needs. And sending surveys goes a long way to improving customer relations and overall brand experiences. This is how you lower churn rate and retain your best customers.
“56% of consumers said receiving a personalized incentive would improve consideration of the brand.”
Customer-centric experiences are the way to go, as a unique brand experience that makes consumers feel cherished precedes loyalty. Do this by providing exclusive features and content with a personal touch. Catering discounts and offers to consumers based upon buying history or demographics.Using double-sided referral rewards to inspire altruism, loyalty, and engage prospective clients? Very personal and very effective for boosting brand perception and revenue.
“On average, loyal customers are worth up to 10x as much as their first purchase.”
Like a fine wine gets better with age, loyalty improves through time. When done right, the bottle never empties. Aim for customer retention by acknowledging their loyalty in the form of: thank you emails bearing incentives, milestone incentives for 3rd or 10th purchase, birthdays – you name it. It’s ideal for keeping customers engaged and your brand top of mind.
Cross-selling is best done with insight in your pocket and loyalty on your side. What’s your customer likely to want next? Leverage customer information to make personalized recommendations. Testing offers out at time intervals 15 days, 30 days, 90 days after purchase can be paired with behavioral campaigns for item replenishment, product recommendations, or product announcements.
The Numbers Are Up
As Vilfred Pareto first saw, there’s a natural distribution to the world. Over 100 years after his revelation, you can capitalize on the fact that doing more with less is the smart way to drive marketing revenue.
Yes, by fusing these lifecycle statistics with customer behavior and loyalty marketing, you can propel your brand towards increased engagement, repurchasing revenues, and massive customer retention.
As we’ve seen, it’s worth your while to do so. Brands which appreciate their customers’ experience as first and foremost will jump ahead in the long run.
A few questions to consider before you go:
How well do you treat your current customers?
Do you recognize their loyalty?
If your answers were less than satisfying, you know where to invest your time and energy.
It’s as easy as 80-20.
Brandon Gains is the VP of Marketing at Referral SaaSquatch. He leads growth initiatives at the company using a mix of content, design and web development tactics. Brandon also contributes articles to publications like SocialMediaToday, CustomerThink and Business2Community. You can connect with him via email brandon at referralsaasquatch.com or on LinkedIn