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September 2nd, 2020

Your Customers' Lifetime Value Starts Today

There's a retail plaza in town where I like to hang out. It has a LOFT store, a Chick-fil-A, and a Starbucks—in my book, that's a special piece of heaven! I have an ALL rewards credit card in my wallet, the Starbucks app on my phone, and I'm working my way to elite Red status in the Chick-fil-A rewards program. I'm not kidding around.

A few weeks ago, I drove by that favorite plaza looking for a sign of normalcy in these pandemic times. The LOFT and Starbucks were closed, the retail lot was empty, but there were maybe sixty cars in the drive-thru lane at Chick-fil-A. They had annexed the retail parking lot to handle the overflow, posted staff to direct traffic with a smile (as far as I could tell under the masks), and I was in and out in 15 minutes with my kids' favorite comfort food on the seat next to me.

That experience left me pondering the uneven impact of today's pandemic on the brands I love and how that, in turn, may affect customer loyalty.

Retail and QSR in the eye of the storm

It's not hard to see that brick-and-mortar retailers overall are struggling, especially outside of the grocery category. At the peak of the lockdowns, discretionary spending in some retail categories plummeted by as much as 90 percent. Business has picked up again around the country, but not evenly, and customers remain cautious. Main street darlings like J.Crew, Neiman Marcus, JCPenney, Brooks Brothers, Lucky Brand and, sigh, LOFT closed shop or filed for bankruptcy. You simply can't operate a brick-and-mortar store when people are forced to stay at home.

But there are other forces at play. Traditional retailers were losing ground to Amazon and online D2C retailers long before the pandemic hit. Did the pandemic accelerate their demise? Absolutely. But retailers with a strong digital strategy, attentive customer service, and effective home-delivery or click-and-collect solutions are weathering the storm, even beating expectations. Target is a good example.

What’s happening in the quick-serve restaurant (QSR) category? Major players like Taco Bell, McDonald's, Domino's, and Chipotle are on a hiring spree this summer, adding tens of thousands of employees around the country to meet demand. Chick-fil-A made national news with footage of drive-thru lanes overflowing into street traffic. Papa John's hit record sales in April and broke that record again in May with same-store sales rising a whopping 33.5%.

By forcing full-service restaurants to close abruptly, then slowly reopen at reduced capacity, then close again in parts of the country, the pandemic essentially eliminated the competition for QSRs. People have to eat. But the tools that are allowing QSRs to be so successful today were in place long before the pandemic. The top brands spent years investing in customer data, mobile apps, and home-delivery, and those investments are paying off big time. Fast-casual restaurants, for their part, rely on sit-in guests for the bulk of their business, so they’ve been hit harder. But the ones that had the tools to reach out to customers and let them know about take-out and curbside options bounced back quickly. Panera even took it one step further and started Panera Grocery to meet the demand.

Midway through 2020, the big picture is very different for retail and QSR brands. Retailers are down, QSRs are up. But there are big winners in both industries, and they have one thing in common: a strong omnichannel presence, and a full understanding of their customers' behavior across all channels.

New vs. existing customers during a crisis

In a recent joint presentation with Neustar, eMarketer reported that back in March--during the first month of widespread lockdowns in the U.S.--41.8% of online grocery shoppers were first-time online buyers in the category. Similarly, many of today’s QSR customers are first-time online and app users.

Brands generally value the loyalty of existing customers over the fickleness of new customers (something about a bird in the hand being worth two in the bush), but is there anything wrong with new customers? Does customer loyalty still matter? 

The question of whether a brand should prioritize new or existing customers is as old as marketing itself. A couple of years ago, two top research companies tried to settle it by looking at the exact same expansive dataset of brand performance data. They presented the conclusions of their data analysis at an ARF conference that year, and they were polar opposites: one research firm found that it was more valuable for a brand to spend marketing dollars to nurture existing customers, while the other concluded that it was more important to acquire new customers. They eventually agreed on a hybrid model with different recommendations based on the level of maturity and market dominance of the brand in question.

Finding the right balance is of vital importance for a brand. Acquiring a new customer can be much more expensive than retaining an existing customer (the rule of thumb is by a factor of 5X), and brands trying to survive in a pandemic hardly have the time and resources to spend on costly outreach efforts. On the other hand, even a modest boost in customer retention can have an outsized impact on a company's profits. Members of the Panera loyalty program, for example, spend 5X more at the chain than non-members do.

Your customers’ lifetime value starts today

When analysts measure the lifetime value of a customer (CLV) for a brand, they examine historical patterns to understand order size, frequency of purchase, and expected retention rate. My lifetime value to Starbucks? A back-of-the-envelope calculation by Kissmetrics a few years ago puts it at $14K. Those cold brews do add up! But the goal of a CLV analysis is not to produce a number in a vacuum, but rather to identify like-consumers and figure out how to reach more of them. The big payoff is not the CLV analysis per se, but the segmentation analysis that follows.

With our partners at the Mobile Marketing Association (MMA), we recently co-hosted Wharton professor Pete Fader for an online debate on customer-centricity. He was quick to remind everyone in attendance that brands shouldn't be complacent with their segmentation analyses and should always be on the lookout for changes in behavior among their best customers. But in his experience, it takes 3-4 years of accumulated customer data to properly understand the dynamics at play.

Which means that there’s no time to waste. You should start collecting customer data right away if you’re not already, and you should make sure that the data you collect reflects your customers' full experience. No more data silos, with point-of-sale data in one database and email marketing data in another. In the acronym-heavy world of martech solutions, top vendors are now offering MTA, CDP, and DMP solutions that are fully integrated with one another and can be deployed across your entire omnichannel infrastructure. Take advantage of those new tools.

Companies like Costco and Chick-fil-A invested in data and data infrastructure years ago. Any wonder why they’re leading the pack during the pandemic? 

Passing the baton to your next best customers

With a unified measurement solution in place, you’ll be able to understand the impact of your marketing campaigns across all channels, and how each piece brings your customer one step closer to your cash register. You will finally get to know your most loyal customers. It’s well worth the investment.

And keep in mind that loyal customers can carry you through a crisis in more ways than one: as it turns out, loyal customers are your best advocates to recruit the next group of loyal customers—via word-of-mouth recommendations, social media, and positive reviews. According to a recent study by KPMG, 86% of a brand’s loyal customers recommend it to friends and family. UCLA's Dominique Hanssens, another guest lecturer in our MMA debate series, has measured the sales elasticity of a variety of marketing techniques over decades of research and found that positive product reviews have 7X more impact on brand performance than advertising alone.

Want some evidence of the power of positive reviews? Look no further than what social media did for Popeyes in the 'chicken sandwich war' late last year. As a Chick-fil-A loyalist, I must say it hurt.

Don’t waste another minute: invest in data, technology, and channels that will help you connect with your best customers, now and into the future. You will get through this pandemic, I promise. But you won’t survive very long without them.

 

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