Identifying, Caring for, and Retaining Your Best Patrons
It is a truism that an arts organization’s greatest profits come from a small percentage of its patron base and from repeat sales to current patrons. But many organizations don’t or can’t take advantage of this knowledge because they aren’t able to tell their best customers from all the rest. By treating all customers alike the best customers gradually may, over time, become lost customers, and the organization won’t know why.
There is tremendous value in introducing the dimension of time into the customer retention process. By tracking a customer’s life cycle and projecting his/her lifetime value to the organization, smart marketers can deploy resources towards retaining their most valuable patrons and continue maximizing the revenues this group represents.
Businesses are keenly aware of the challenges and costs of acquiring new customers. At the same time 80% of a company’s profits typically come from sales to only 20% of its customer base—i.e., its best customers. Performing a customer retention analysis (CRA) allows an organization to follow a customer’s progression from new customer to best customer (or lost customer). To accomplish this, CRA uses a combination of statistical tools called “descriptive modeling techniques,” starting with a standard Recency, Frequency, and Monetary (RFM) Analysis and then mapping the stages of a customer’s life cycle in detail (using, for example the TRG-developed, 3-dimensional Visual RFM™ technique). The final step is identifying specific customers in each stage of the cycle.
By repeating this analysis on a regular basis an organization can follow the migration of customers from one life-cycle stage to another.
Benefits of Customer Retention Analysis
- CRA starts by identifying a company’s highest-revenue “best customers.” These customers deserve a company’s best service, attention, and loyalty promotions to encourage their continued “best customer” behavior and to reap the resulting profits.
- It also identifies a company’s “almost best” customers. With proper encouragement and communications, many of these customers can become “best customers.”
- It can help reduce the number of customers who drift away from the company and become “lost customers.” The loss of even a slightly profitable marginal customer is a loss of growth potential to the company. It is nearly always better for the company to keep existing customers coming back than allocating time, effort, and money on prospecting for new customers.
Many organizations are unaware of how many customers drift away each year. They rarely calculate how much revenue they forego with the loss of even a marginal customer. A well-designed CRA process can identify customers who are drifting away in time to launch “win back” efforts and salvage the company’s investment in acquiring these “at risk” customers. [Note: when cost data are available, the CRA process can be enhanced with a Lifetime Value (LTV) Analysis, which shows how much can profitably be spent on loyalty promotions for each customer segment.]
What data are needed to perform a Customer Retention Analysis?
Organizations can perform a CRA if they can provide:
- The date of a customer’s most recent transaction
- The total number of transactions for the customer
- The accumulated dollar value of the customer’s transactions
Conclusion
The unique value of Customer Retention Analysis lies in its ability to track changes in customer behavior over time. The knowledge gained from a well-implemented CRA establishes the foundation for insightful marketing strategies and effective promotional campaigns. Performing CRAs regularly also provides objective quantitative measurement of the success of each advertising and promotional program, maximizing return on investment, and reducing loss by creating offers intended to reengage the “at risk” customers revealed by the CRA.
But ultimately CRA’s most important benefit lies in the increased revenues gained by establishing and retaining high-value, loyal “best customers” who are the cornerstone of a successful performing arts organization.
To learn more about doing a Customer Retention Analysis and how it can benefit your organization, contact Will Lester, Vice President, Target Resource Group at 719.314.5835 or email wlester@trgarts.com.
