When Don Peppers and Martha Rogers released their book The One to One Future in 1994, they reminded marketers of the power of personalized interactions with customers. Although the concept of knowing individual customer’s needs and preferences has been around since the dawn of commerce, it is more important today than ever.

As retail marketers already know, it costs much more to acquire one new customer than it does to retain five to seven current customers. Copious data points to the value of marketing to existing customers through more personalized, exclusive offers and streamlined access to loyalty programs. Through initiatives that strengthen relationships with existing customers, retailers can minimize reliance on strategies such as price cutting that can result in a lose-lose situation for all competitors involved.

Despite the clear value of nurturing existing customer relationships, retail marketers, understandably, face intense pressure to acquire new customers to fuel the sales funnel. The key is to strike a balance between marketing to existing customers and bringing in new ones.

One of the most vital metrics that can be used to determine where to spend marketing resources is to calculate the lifetime value of your customer segments. The aim is to help determine the break-even and profitability points for each customer group, where investments will pay off, and even when it might make sense to offer discounts.

The equation can be relatively straightforward:

(Average order value) x (Transactions per Year) x (Average Retention Time in Months or Years for a Typical Customer) = Lifetime Value

Although knowing the lifetime value of a customer is an important first step, today’s digital marketing landscape has made it exponentially more complex to determine where to spend marketing dollars. In a retail world involving digital interactions across multiple touch points, knowing the customer at a deeper level is crucial.

Customers expect to engage with retailers in ways that are meaningful and reflect their interests and needs. This level of deep engagement requires using customer intelligence to power real-time marketing, a strategy that involves dynamically personalizing content and delivering it to consumers through multiple digital channels: Web, email, social, and mobile as well as through in-store kiosks and at the point of sale.

Another effective way to win over customers and gain their ongoing patronage is through loyalty programs. Such programs can improve ROI of online and offline efforts. Because loyalty programs are rich with information (such as when a customer uses their loyalty card or redeems points in store or online), they give retailers better visibility into multiple touch points and allow a retailer to personalize offerings accordingly.

Here are several keys of the most successful loyalty programs:

  • Have a clearly defined value proposition that balances customer and business needs.
  • Leverage customer segmentation data, helping to identify who the most valuable customers are.
  • Offer real-time marketing to each segment to move one-time purchasers through to advocacy.
  • Take advantage of integrated digital marketing solutions capable of giving a complete view of customer preferences online and offline, while automating personalized interactions across channels

Knowing the customer, establishing loyalty programs that build brand preference, and using real-time marketing can be challenging, but the payoffs are worth it. Marketers that allocate resources and obtain the right solutions to personalize customer experiences will be those that succeed through differentiation based on loyalty. It’s a much better strategy than engaging in ongoing price wars, where the only way to go is down.

For more information on how to retain existing customers, download the latest Adobe paper, “Building Customer Loyalty and Advocacy in a Price-Driven Retail Market.”