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Strategy

Should Product Marketers Prioritize Referrals Over Retention?

Are we getting over-obsessed with minimizing churn and maximizing renewals? What if we were actually better off inspiring brand evangelism?

Ben Jacobson
August 13 2018

What if retention marketing is wider than we thought?

As retention marketers, we work to keep customers around. The conversation is hyper-focused on making sure customers complete another purchase. We talk about churn and renewals enough, but what if there’s more we should be working towards? The traditional sales funnel, of course, begins with awareness and culminates with a sales conversion. Then came retention marketing, with its focus on customer loyalty as a key objective, essentially telling brand managers that they need to emphasize what happens “post-funnel,” if you will.

But if we follow that line of thought to its logical end, taking a 360-degree view of the customer lifecycle, then we can see that even retention is hardly the panacea of marketing. This is why growth and customer experience strategist Buckley Barlow favors what he calls a “bow tie funnel” structure, whereby sales ideally lead to adoption, loyalty, advocacy and even ambassadorship.

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“What occurs in that mirror-image funnel, after the point of purchase,” he writes, “symbolizes the other half of the customer journey, the one that never ends.”

So yes, there’s so much more to the customer experience to pay attention to than individual transactions themselves. A recurring customer doesn’t necessarily mean a happy customer – just that we’ve done the bare minimum of retention, or made it hard enough for people to not opt out. This is what channel loyalty firm Maritz refers to as the “inertia loyalty” trap.

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You have bigger goals for your customers than being average – you want them to be downright elated. Just as there’s more to your customer, there should be more to your customer retention.

Go beyond focusing on repeat purchases, the bare minimum of retention. Instead, think of all of the ways you can improve your customer experience and engagement, finding new opportunities within your existing customer base.

Take, for example, referrals. With the right product and referral program, even free users can bring revenue into your business. They’re a great opportunity for retention marketers, and your business’s strategy should pay attention to them just as much as recurring sales.

Taking Your Funnel Further

Growth marketers, ever obsessed with finding their “true north,” know all too well that customer acquisition is just the beginning. Take a look at the growth marketing ”Pirate Metrics” funnel (nicknamed this because acquisition, activation, retention, revenue and referral, abbreviated effectively by the acronym AARRR, is supposedly pirate talk), and notice it’s never ended at retention.

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Indeed, there’s more to the customer lifecycle beyond retention. It’s a wonder so many marketing efforts end there, and ignore other business development opportunities from loyal, long-term customers. Besides keeping them onboard, there’s a lot more you can do to create a better customer and move them through your funnel. For example, you can continue working to maximize the average revenue per customer or increase user engagement and satisfaction. You can also maximize your customers’ word-of-mouth and referral potential, which not only increases engagement but also starts a new customer acquisition loop.

Longer-term customers you’ve successfully retained can be an amazingly effective group to advocate for you. While many referral programs push telling a friend from the very start, a customer with lots of personal experience and history with your brand will likely be a stronger referral source. This is why so many growth marketers use timed net promoter score (NPS) queries as springboards for ambassadorship. It just makes good sense – if someone indicates after using your product that they’re likely to recommend it to his or her peers, then you’d be silly if you didn’t ask them to.

“For the promoters, a great idea is to send out a reward club membership, allowing them to join, earn points, win prizes, and get discounts,” recommends Jerome Collomb, the marketing lead at MyFeelback. “This is a great way to thank them for their business and positive remarks, while further building their loyalty at the same time. Another good idea is to include a referral program, where your promoters win discounts for referring friends. This will help them begin acting as a brand ambassador for your company, which is your ultimate goal.”

Focusing your attention and referrals on valuable long-term customers like this lets you extend their own customer lifecycle further. All of this will improve the impact you have in the retention-focused bottom of the funnel and how much value existing customers bring your business.

How Referrals Can Drive Down Other Costs

Getting more value out of your existing customers through referrals is even a win for your marketing budget. Word-of-mouth marketing turns customers into marketing advocates, driving new users at a much lower cost than some other marketing strategies.

One of the most popular statistics to support retention marketing is that it costs five times to attract a new customer than it does to retain a current one. However, that stat doesn’t take into account the varying costs of different acquisition tactics. A referred customer is likely going to be cheaper to acquire than a customer found through PPC, simply because people click on ads for any number of reasons, whereas referrals are warm introductions from trusted peers – and they can often take place at close to zero cost.

What’s more, once that new referred customer has been affordably acquired, they’re often more valuable than a customer found through a colder audience. Harvard Business Review found that referred customers to be both more loyal and more profitable than others, making them prime opportunities to make referrals themselves.

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This can create a wonderful, low-cost acquisition cycle that creates and retains up to 27% more high quality customers. Don’t forget that these new customers are in addition to, not instead of, the retained customers that referred them to your business. This referral and retention cycle both decreases your customer acquisition costs (CAS) and increases retention, improving your marketing budget in multiple places.

Combine Tactics to Keep the Cycle Moving

As you see from the customer referral chain described above, it’s not an either/or choice between focusing on retention or referrals and acquisition. The best retention marketing strategies explore all opportunities within your existing customer base, which will often provide a combination of business benefits.

This might mean extending their own customer retention period, but it really shouldn’t end there. Increasing usage and engagement, upselling or cross-selling, and activating valuable customers as advocates can all provide even more than a recurring purchase can in the long run.

Imagine this situation. You offer a referral program to your long-term, loyal customers in addition to doing everything else that you can to increase their value. They go talk about your business to friends and family, with whom they have lots in common, making several people in their community your ideal customer as well.

A significant proportion of their friends that become customers eventually become just as loyal and vocal about it as that original customer. Suddenly, you’ve gone from one loyal and engaged customer to hundreds of them who will stay with you, earning you revenue, for years.

That’s the kind of impact this focus on the entire bottom of the funnel can have. It builds a loop or cycle where improvements at the bottom of your funnel (including optimizing for referrals) cause increases at the top of the funnel as well (new referrals made). You can keep spending your time and effort on retention marketing while those loyal customers you’re creating acquire new customers for you.

Sounds ideal, right?

Improve Everywhere

Taking a broader look at retention marketing lets you improve every area of your customer journey, and simply by further activating loyal customers.

They’re the ones most likely to support you, and it’s time to start taking advantage of all the opportunity in that.

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Ben Jacobson

Ben Jacobson is a marketing strategy consultant who specializes in content, social media and influencer marketing for B2B firms. He contributes regularly to publications including MarketingLand, Search Engine Journal and the Orbit Media blog.

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