Marketing and Research Consulting for a Brave New World
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Brand growth depends on growing your customer base, but it is wrong to assume that for well-known brands, your number one advertising goal is to attract new customers. The best way to grow your customer base is through increased retention of customers. And it turns out that over and above your CRM e-mails, text messages, and good customer service, your customers are hyper-sensitive to your paid advertising.

Advertise more to existing customers than non-customers? Counter-intuitive! Heretical! But mathematically, the evidence is on my side.

Why you should advertise to your own customers.

Research studies I have been involved with have consistently shown that a brand’s own customers/buyers are hyper-responsive to its advertising…a minimum of 6  TIMES more responsive than non-customers. For example, if a dollar of advertising generates $1.50 in incremental sales from non-customers, it should generate a minimum of $9.00 from customers. That is over and above whatever CRM-based marketing you do.  Advertise disproportionately more to your customer base or are you allergic to higher ROAS levels that can prove to the CFO that advertising works?

One CMO I tried to convince was shocked to find out that even his heaviest buyers were hyper-responsive to paid advertising…delivering the greatest incremental sales response. Why? Because heavy brand buyers are not as loyal to their brand as marketers (in their hubris) think…they still buy plenty from competitors so marketers are fighting for their purchases…you just don’t see it in your first party data. And advertising works really well on this battlefield.  Once I communicated this insight, the logic and evidence fell into place for him.

The bottom line…rather than marketers avoiding advertising to their own customers, they should advertise at much heavier than proportional ad weight levels (at least 3X heavier) over and above all the CRM outreach and remarketing that is typical.

What research and analytics might be missing.

With our focus on retention rate, we can see a glaring omission in many or most trackers that do not even try to measure this! Even if they do, are they trying to analyze the causes of churn? Typically, no. Not the ones I’ve seen when I’ve been asked to provide a consultative review and recommendation for redesigning brand tracking programs that are falling flat with brand management teams.

When I was the NPD Group’s thought leader on brand trackers, we had a strong focus on loyalty and retention.  We also analyzed churn and the causes of churn.  If someone switched away or towards our client’s brand, we identified the main reasons for switching. We then unpacked the balance sheet of won and lost customers by “reason for switching” to identify what the client’s offering was missing or what constituted an advantage. We also matched brand tracker respondents with clients’ own customer records and built “survival models” to identify the main attitudinal factors that led to retention or customer loss. It was quite revealing and provided insights that the tracker survey data in isolation did not provide.

We also conducted a major R&D study. By recontacting respondents who had participated in our brand equity studies, we proved that brands whose loyal buyers had weak attribute rating support were less likely to retain their high loyals over the course of a year. Advertising to your own customers can sear your brand story into their minds and hearts. This R&D study can be freely accessed here and to date, Google scholar says it has been cited in 1242 peer-reviewed papers by other authors.

What heresy I speak!

It is so counter-intuitive that the way to build your customer base is to try to avoid non-customers with your advertising and focus on customers. How could this even be possible?

Well, it’s right in the math in two places.

First, mathematically, there is only one necessary and sufficient driver of sustainable increases in market share…increases in the brand’s repeat (or retention) rate (literally a straight-line relationship.) (Math proof on request). Penetration increases without increases in repeat rate become pyrrhic victories.

Secondly, if you think like a Markovian, you will realize that even without much ad support the probability of a non-customer becoming a customer is not 0. As soon as you realize this, it is only a matter of time until non-customers find your brand. The big determinant of growth is, “When a non-customer finds your brand, do you keep them?” Furthermore, the long term effect of winning a new customer is based on the retention rate. If it’s low, you won a purchase. If it’s high, you have won an annuity.

In real estate, it’s location, location, location. In marketing, it’s retention, retention, retention.

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