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When the economy is foundering, companies look at short-term fixes of cutting budgets to save valuable cash. Historically, the first areas to get the axe are marketing, since the C-Suite may not truly understand the impact of these activities on overall revenue growth.
But this strategy is too often short-sighted. Marketing activities, including targeted campaigns and offers, go a long way in fostering customer loyalty and retention. And loyal customers translate into greater revenue.
Look at coffee giant Starbucks’ revenue, which reported revenue of $6.2 billion in the fiscal fourth quarter (post-pandemic) versus the $6.06 billion expected. However, in the U.S., same-store sales fell 9%, but many of those customers who did visit purchased more per order. Starbucks’ loyalty program with dynamically targeted offers helped drive these increases. The active members who participate in Starbucks’ U.S. loyalty program rose 10% to 19.3 million people in the fourth quarter, and it drove 47% of all transactions.
The key to understanding customer loyalty success is to measure offer campaign performance and tie this to the real impact of the company's key performance indicators (KPIs), such as revenue growth, increase sales and more. By showing the direct connection between customer loyalty offers and the business bottom line, companies may be less likely to quickly scale back these departments when times get tough.
The focus on customer retention and offer optimization
As businesses try to weather the impact of the COVID-19 pandemic, many are cutting back on their promotional activities. According to the World Federation of Advertisers, 81% of large advertisers - which spend $57 billion on media buys and marketing fees annually - are deferring ads as a result of the pandemic. But as many brands realize, these efforts are counterproductive to the companies' ongoing success, considering history has shown how competitors gain a leg up when a company cuts marketing and advertising budgets during economic downturns.
Instead, it's likely that B2C marketers are going to focus more of their efforts and budget on loyalty and retention marketing in the coming year; a projected 15% increase according to Forrester Research. The firm said it expects consumer brands to shift toward localized and retention based marketing, and increase spending on automation by 3% to be able to optimize data analysis and offer creation as COVID-19 continues to wreak havoc on the market.
The real cost of cutting marketing
Instead of looking at the marketing department as expendable, companies are coming to the realization that marketing is the first line of defense in establishing customer loyalty. The offers and campaigns that marketing creates and deploys are designed to draw in consumers and deliver the incentives they need to shop at your store or on your website. Once you have this in, you have the opportunity to provide a customer experience that will keep them coming back, and spending more.
Loyal customers are much more valuable, when you consider the high costs of acquiring new ones. In fact, customers who return regularly to shop at brands purchase an average of 31% more than new customers, and are estimated to be worth 10x more than their first purchase.
Even the smallest growth in loyalty can have a big impact on the overall business. A Harvard Business School study noted that just 5% growth of customer loyalty can translate into a 25% to 95% increase in profits.
Measuring the impact of marketing and customer loyalty
To truly show the direct relationship between marketing, customer loyalty and KPIs, brands need to set goals that align with overall business objectives. Then, they need to track a variety of metrics.
Going beyond estimating customer lifetime value (LTV), brands should consider data points such as net incremental revenue (NIR), which shows the net revenue earned by a promotional campaign minus the costs associated with the offer. This data can help brands clearly evaluate the impact of their marketing tactics on the company’s overall business goals.
By taking this type of data-led approach, companies can gain insights on how to fine-tune offers to get even more bang for the buck, driving customer loyalty and business growth—even in times of economic challenges.
To learn more about the strategies behind measuring customer loyalty and how taking specific steps can strengthen these relationships, download our new white paper, "Formation’s Ultimate Guide to Measuring Customer Loyalty Offers."