Acquisition v/s Retention – What Matters and When
Strategies based on the business model, stage of business, & market conditions could help brands strike the right balance between acquisition and retention.
Strategies based on the business model, stage of business, & market conditions could help brands strike the right balance between acquisition and retention.
Kunal Badiani (Moderator): It’s difficult to balance both Acquisition and Retention. You can’t necessarily say – this week acquisition is more important and next week retention is more important. How do you actually decide and is there a way to decide where to focus?
Ankit Bansal: I think no business should decide between retention and acquisition because both of them are important, depending upon what stage of business you are in. We tackle this at 6thStreet by one single metric which is called OPACs or orders per active customers. We look at orders for active customers in a 12-month window and this single metric has helped take us business decisions across different teams. We are united in terms of what we want to achieve as a business across different teams.
Here’s onene simple example, which I would like to give to explain what OPACs leads into. Let’s assume that we had 1000 active shoppers who shopped with 6thStreet last year in 2021. This year we want 40% of them to come back and shop with us. How many times a year is what OPAC says so we know that, for example, those 40 customers will come back and shop.
As a target, we have taken let’s say five, we want them to shop five times this year with us. So, 40 percent of a 1000is 400, into five, into the average order value. We clearly know whatrevenue we will get out of our returning customers from last year. The difference in revenue is where we need to acquire customers. So, I strongly feel that your retention should fully or partially fund your acquisition. With this approach, I clearly know my performance marketing teams, they clearly know what is the absolute amount of new customers they want to acquire this year – be it through Facebook, through affiliates, and so on.
My CRM teams know what purchase frequency they want to drive towards. So, for us, or for any business, I don’t think they need to choose one. It’s a matter of which stage they are in their growth and how they can leverage one to become more efficient at acquirings customers.
Shaily Varma: This is not even a choice whether you should do acquisition or retention. We need to have strategies which fuel each other. For example, we all know if we have a new product launch or if we have a new market to expand to, definitely acquisition strategy takes the first place. However, I have seen teams make mistakes when this is an ongoing business.
We have the monthly budgets, we have monthly targets, and KPIs. To meet these targets, the focus shifts towards acquisition more and retention takes the back seat.
We can understand this better with some data points. If we put retention on the back seat, here is what we need to think. The success rate to sell to the retained customer will be 60 to 70%. However, to the new customer, it is anywhere between 2-10%, if this is a new acquisition.
Similarly, if the cost which we always take into consideration in any business, can be five times more to acquire a new customer. However, putting the next best offers or discounts or loyalty programs ought to reward the high-value customers, for their retained existing customers. If we increase the retention of those high-value customers by five percent, as per the industry standard, it can reach up to 95 percent of the increase in revenue. So, we cannot overlook the retention strategies. As I said, this is not a neither nor either or situation, there needs to be a cascaded approach so that one is fueling another.
We also have very good indicators through data models which we can monitor or analyze. Data is the backbone for these models;if we have propensity models, if we have the early churn indications, the data will tell you to identify that these are those segments, these are those people who are about to be churned or these are the going to be the dormant customer very soon. Hence, we need to take action right now so that we can retain them.
In acquisition strategy, we can take advantage of those segments where the propensity is going to be high or the likelihood to purchase or the conversion will be better for these segments. All of this can be achieved by the right data models in place and with the right approach in place.
Namrata Bhatia: For the travel industry, it’s quite an easy pick. Unlike others, for us, acquisition mostly takes priority over retention. That happens due to the nature of our product and the fact that the consumption of our services are periodic. Hence, more often than not, it (acquisition) always takes priority over retention. That being said, we also have retention playing a big role in our overall marketing strategy. We love to call this a concept of soft retention and I will be going deeper into it in the later stage.
Nadine Nasser: I think everybody talked about really valid points so I don’t want to repeat it. I just want to add one more thing that it also depends on the maturity of the brand. If you’re a really well-established brand, if everybody knows you, obviously things change for you. However, if you are a new startup, you’re growing your audience just now – you have to get your message out there and you need to prioritize acquisition. I currently have this very exciting opportunity to work for a unique brand like MDLBEAST. Like Nadine, I used to work for a financial center, that time it was about optimization for me. Before retention or acquisition, it was an optimization game.
However, for MDLBEAST, we have a cultural mission. So, MDLBEAST has this mission to accomplish a paradigm shift for the Saudi youth. Hence, we need to get our message out there and we cannot bite a huge chunk, we cannot talk to the whole Saudi youth at the same time. In that case, it goes together – we need to acquire the Saudi youth, get our message out there, and then we have the duty to retain them.
We are a platform with so many different things, we need to tell them different stories, we need to nurture them, and make sure they are cared for and accounted for. We actually give them what they really need — to express their creativity. So, we have to acquire them and then retain them to achieve this bigger vision as a part of Saudi’s bigger vision.
Moderator: That’s a very good point! If you’re a new brand, it’s obviously more important to get the customers and then create the experience and then keep retaining them.
Damac is a very well-known brand but obviously, it’s more than just real estate now. It has become prop-tech, it has NFTs, crypto, and so much more. When I think about just the real estate piece, Shailey, if I can put you on the spot with this question – acquisition and retention are completely different from e-commerce as an example or lifestyle or travel or entertainment.
What strategies do you tend to deploy and what kinds of models do you look at? What kind of AI/ML initiatives do you try to influence this acquisition versus retention?
Shaily Varma: This is called the RAD – retention, acquisition and development. As I explained, this cannot be either or so, if at one end the performance marketing is fueling the engine with the acquisition, then we have the direct marketing which can remarket or retain the users. And then, we have the data which can always come from the CDPs and from other systems which can indicate who to target, when to target, and what to target.
So, we try to keep a balance between all of these and a huge focus is on increasing retention because the size of the ticket item is big in real estate and that is definitely a beneficial model for us.
About acquisition – first, find out your addressable market. How big is your user base out of total market share? Which one do you want to target so that you can reach out to the right people? If you’re expanding into the international market, what are the size, volume, preferences, and choices? Here are tons of data points that can come into consideration to identify that addressable market.
The second approach for acquisition is that we build our manifesto, a single communication across all channels – this has to be there, even for other industries. It sends a single message and the user connects to that better. The most important part is that we don’t go blind, which means that we always have research data to go into totally new markets with a new product. That is because we have the historical data and based on historical data, we can create some look-alike models so that we never go blind. It is a test and we need to learn but acquisition is better if you are more informed and you can make better decisions based on that.
Similarly, for retention, I always start with CLTV, i.e.,customer lifetime value, and then go to the top of it. So, once we have that value in our hands, we can develop a lot of models on top of it. We can identify the early turn indication, the propensity, and the likelihood. On top of it, if the RFM model is developed (recency frequency monetary value) and then we do the segmentation based on it. You can then identify who to target, with what channel to target, with what type of content, and with what type of product. So, the RFM model is hugely helpful, we use it under CDP as well. Build the model and test and learn — that is the best way to go.
Moderator: Yeah, effectively what you’re saying is data drives primarily everything.
You mentioned community and the opportunity to build a very loyal set of customers. However, knowing MDLBEAST, it’s an umbrella – there are multiple product categories and you have the opportunity to upsell & cross-sell over the course of the journey that a customer has with you.
What kinds of strategies do you deploy? Is it a different level of segmentation? Is it personalization at different levels? What are you doing to acquire yet also keep these people in your funnel for longer?
Nadine Nasser: That’s a very good question. When you work with a brand like us, it becomes very tricky because your offering is very philosophical, you go out and you say, you are a creative platform but you have a product and you need to sell.
So, when you go out with a vague statement that looks very creative, but how are you going to make it tangible? How are you going to speak to people and generate revenue?
We do it using segmentation, personalization, and through our Martech stack. I am not going to talk about the technical details but we orchestrate our full Martech stacks like our CDP, our marketing automation, and our personalization tools like the website and everything together. This helps us understand how people are operating in our community.
I’ll give you an example, we have Soundstorm – Middle East’s biggest electronic music event. We welcomed 700,000 people in 2021 and that’s a lot of data. We are also a publication, we have a magazine & an online television channel and then we have other online experiences.
People who consume MDLBEAST products and content, they go across all these platforms – online and offline. What we do is, we see the overlaps, we see the crossings between these experiences and we use the lookalikes and propensity to grab the ones that did not consume Beast FM. We know that they have a high propensity to consume because their data shows a huge overlap with this particular audience profile that came to Soundstorm.
So, we definitely use it for cross and upsell opportunities but we also need to be inclusive. We are talking to the Saudi youth from all social and economic levels and we have very expensive experiences but we also have affordable ones. So, everybody is a part of it. What we do when we personalize is – we have their LTV information badges, and everything they consume, to the point that we know if they ate chicken nuggets or fries at our festival. Then we target them and talk to them based on their experiences and their interests in the past and what they can afford.
Moderator: That’s really impressive! Thank you for sharing that. If I were to again just try and summarize that, it feels like what you’re trying to go down to a segment of one because it’s not even broad strokes. If someone eats a certain type of food, very different from everybody else at the event, for example.
Nadine Nasser: We actually use location-based data at the same time, using offline data to specifically target people. So, we knew which kiosks or food stalls were in the VIP area at our festival. Let’s say if there’s no consumption from that area or it is a quite low entry point, if the average basket value is quite low, next year we would move it to the general admission area, based on the consumption data.
Let’s say there is a general admission area, a very popular kiosk that was consumed a lot – we would then move it to the VIP area because VIPs want to eat chicken nuggets as well or fries. We would even use it to redesign physical spaces for our customers.
Moderator: That’s awesome! You’re unpacking all the data that’s available at MDLBEAST and using it for good business decisions. Thank you for sharing that.
Moderator: E-commerce is probably the most understood industry vertical right now. We are all shoppers, we all do it. 6thStreet is an amazing brand but clearly, it’s not as repetitive as you’d like. Sometimes people tune out, they become dormant, and some might uninstall or potentially disappear completely.
So, two things – First question, how do you actually know before these things are going to happen, that they might happen, and secondly what are you doing to stop these bad outcomes from potentially happening for any e-commerce brand? How can they constantly keep that lifetime value growing and the engagement levels from their customers growing?
Ankit Bansal: I think to answer your first question, which is about how you identify people before they become churned – we just have to look at the behavior of the customers. For example, your use cases could be how many people are not moving beyond the home page. You can send push notifications, and you can drive them through Facebook ads, or Google ads. But if they’re not moving beyond your home page, something is not relevant. Whatever you’re trying to communicate to the customer as a brand, it’s not going through.
So, if you start creating those segments, and how we do at 6th Street is, we look at top of the funnel and the bottom of the funnel. Looking at this, we have identified that the top of the funnel is the needle mover, that is, for how many PLP (Product Listing Page) impressions do customers move to PDP (Product Detail Page)? What is your ratio as a business, what is the industry benchmark against that and where do you stand?
PLP is something that every e-commerce player will have the highest number of impressions on. The funnel starts from there. So our 2% movement on that funnel is bigger than 10 movements down the funnel. We started incorporating these funnels into our daily catch-ups so that all heads of departments, across the business, are there and then it becomes your second nature.
You start looking for problems — PLP to PDP ratio, revenue, missed targets — what is the problem? Is it the top of the funnel or the bottom, what is the problem with PLP to PDP?
Suddenly, you narrow down the problem just by having that into your daily catch-up. We took this problem, we started across different teams — whether it’s mostly between marketing and merchandising. How do we improve the top of the funnel ratio? This leads me to the second part of the question on how we approach or what strategies we use to decrease the churn rate.
I think in that funnel, relevancy is the key. If a customer is not entering the funnel at the top, it means no matter what communication you are doing, it’s not relevant for them. So, it’s time to talk to the customer, it’s time to listen and take business decisions on the actual problems, after hearing from the customers. There are 101 things you can do as a business, it could be your taxonomy that is not proper and that the customer is looking for a watch but it is not under accessories or under men and so on. It’s a very common e-commerce problem. The second problem could be your card page is slow. The third problem could be your search functionality is not working and so on.
However, 100 problems mean 100 jira tickets and nobody wants to have that conversation with the engineering team. I personally think, jira for science fiction fans is a wormhole because when you talk to the engineering team, the only thing that comes out of it is a priority and for me, my time and the space in my head shrink.
That’s why I call it a wormhole. But what we have done is, through customer iteration analysis for 6thStreet, we have boiled down the problem statements into four main things. The first one is the size availability, the second is the post-purchase experience, the third is your customer service and the fourth one is assortment. We have triggered through MoEngage, a survey on the preferred channels for customers, asking all these four questions. If you give an unsatisfied response on any of these four questions, you are then asked a few more questions, which for us as a brand helps us go a bit more granular on the problem statement. This is the approach we took.
As a result, a significant percentage of people responded to the size availability question. So, we took that feedback and tweaked our PLP sorting algorithm, and increased the weightage of size availability as a factor. Now, the products which appear on the top have a higher weightage for the size availability, it should be more than 80%. This single step helped us improve our PLP to PDP ratio by 10% in the last three months. So, I think listening to the customers is really important.
Boil down problems instead of tackling 100 problems at a time. Listen to the customer and understand which problems they are facing the most, tackle that and you will see the impact.
Moderator: I really like that! Maximum impact, wherever you can drive maximum impact! You’re doing this daily, it’s all manageable and it actually once the business sees results, of course, it becomes a part of your workflow.
Ankit Bansal: I think this is the single most critical change that we have done in the business this year – the mindset. If I think that was important, I can work in a silo but the business will not see an impact. Put it on the table for everyone to see, every single day, then in a week, in a month – everybody will catch up. It becomes the common conversation on a day-to-day basis, that’s where the teams get aligned and where that positive vibe of everybody moving in the same direction comes in.
Moderator: That’s really cool! Thanks for sharing that and that’s really important. Transparency gets everyone aligned, that’s important regardless of what you’re solving for.
Moderator: Namrata, I think you mentioned that acquisition is important for the travel industry. How are you trying to ensure that once they are acquired, whenever they are looking for a travel service they will come back to Holiday Factory? What does personalization and using data have to do with this?
Namrata Bhatia: Sure, as we touched upon, our services are consumed periodically – that’s where the whole retention game really changes. An average traveler travels maybe two to three times a year, maybe now more after Covid because you couldn’t travel for two years. The average still remains two to three times a year. So, we look at retention differently, for us, it’s really about the dream of your next holiday itself. It’s that vicious cycle, the infinite loop.
Let’s say you’re on the last day of your holiday, and the only thing running on your mind is when am I going to do this again. To really paint a picture, let’s put Kunal in the Maldives. He’s laying by at the beach and you have a couple of hours to catch a flight. What are you thinking? When am I going to come back here or when am I going to travel next? It’s this dream, this infinite loop that we want to inject with some moments, which we love to call at the Holiday Factory to achieve soft retention.
We always use a different mindset to this approach. When you successfully acquire a customer, whatever the meaning of an activation moment that may be, you want to find a way to keep that customer alive in your ecosystem. You want them to be relevant to your product and your brand without any external mediums or an advertising environment per se. That’s how with personalization and with the help of MoEngage, we are connecting with our customers.
After understanding our users, after profiling our customers and getting enough data to see what that dream could be. It’s not just psychology, it’s a lot of factors and data points there to understand what would that next travel dream be and how can Holiday Factory make that dream come alive. Once you have enough data, you’re able to use personalization with tailored recommendations. You can also use personalized emailers, SMS, or even social media to keep that customer in your soft retention journey. Next time they want to keep that dream alive they will remember me, Holiday Factory.
I believe the most successful and the best marketing efforts are usually the ones that balance all the elements of your conversion funnel. From acquisition to retention and beyond it – your converted or retained customers are becoming your brand advocates, that’s where it brings you value.
As a brand advocate, you might be giving that final nudge to a prospect becoming a customer. The combination of soft retention along with brand advocacy helps us create a winning strategy. Personalization plays a huge role here, in travel generally, personalization is a game changer.
Moderator: That’s very cool! Yes, there is deliberate retention especially when you know the frequency of purchase. Travel, you probably know that there is a window of time that someone will travel, you don’t know whether it’s going to happen next week or next month. If you’re in that soft retention journey, then you start building that long-term relationship with your customers.
Moderator: Let’s conclude by quickly discussing the role of technology, in all of this snippet on how you have used and what you have used.
Ankit Bansal: Most businesses have more information than they can actually process. The differentiation is what are you doing with the information in front of you. In the E-commerce space, for example, everybody here uses GA, and more or less everybody has sophisticated E-commerce tracking but that is not actionable in real-time.
Of course, you can pull out reports and provide reports to merchandising this and that but you cannot create smart flows based on that. That’s where marketing will enable marketers to take decisions based on real-time data coming in and the data has to be actionable. That’s where a platform like MoEngage or most of the marketing automation tools that we use are helping our teams.
They are helping with a continuous factor like each week we need to do a test, every month there have to be two tests – whether it’s in-app communication, whether it’s E-commerce, or through WhatsApp. These tests are enabled by MoEngage. For us, technology enablement through data-driven insight and actionable insight is the key.
Nadine Nasser: We use a lot of tools at the same time but at the heart, we have our CDP and MoEngage for customization and optimization of that particular customization in that message and that content that helps us.
We also have tools that make decisions on our behalf but sometimes the decision makers need to make a decision too. For that, we have an intranet that connects to real data and notifies us when something changes so that we can take decisions company-wide internally.
Namrata Bhatia: With MoEngage, we’re able to profile the customers better. That gives us data to understand what would their next step be. You also have a lot of historical data but can it help you predict what their next booking is going to be? In this industry, not really.
It can give you a little bit of understanding but not the right prediction of what the next step is going to be. It depends on their situation, depends on their likes, and on the opportunity that they’re utilizing — whether it’s an anniversary or a single trip. Collating as much information about the behavior using MoEngage has really helped us with personalization.
Shaily Varma: Absolutely! Technology is the most important component but technology is as good as your team knows how to utilize it. The use cases are there and as everyone said, the automation to the real-time insights is the key and this will be the game changer in the future.
If we have platforms that are insight-led or so far it is the case that the insights coming from the insight engine, and then this is integrated to other systems, and then you are taking action.
So, if the system is already so smart that the insight comes from the same engine and the automation is there at the same time of the user journey, whatever stage they are on, if you’re able to capture them. This is how I see the future. I know that some organizations have already achieved it — 7 out of the top 10 in the current equity stock market. So, technology plays a more prominent role, but we need to know how to use it.