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.”