The Case for Customer Reactivation

The facts are clear: It costs far less to reactivate a dormant customer than to acquire an entirely new one; recent activity is a powerful indicator of customer lifetime value; and investments in retention marketing deliver the highest ROI of any strategy. But some marketers may still be missing out on some of today’s best practices in reactivation marketing.

direct mail retention vs. acquisition

As marketing advances, most professionals are well aware by now of the importance of retention and reactivation in optimizing the value of the customer base. The facts are clear: We know that it costs far less to reactivate a dormant customer than to acquire an entirely new one; we know that recent activity is a powerful indicator of customer lifetime value; and we know that investments in retention marketing deliver the highest ROI of any strategy.

But some marketers may still be missing out on some of today’s best practices in reactivation marketing. Let’s review the strategies that are most effective in stimulating a renewed relationship with your dormant customers, and reducing customer defection and churn.

Reactivation marketing applies to all kind of product and services categories, from consumer to business markets. The tactics and tools have been developed and refined to a fine art in the area of subscriptions and replenishment types of marketing. Let us learn from these trailblazers.

If you need backup to justify your investment in customer reactivation, here are some useful stats:

  • A five-point decrease in defections can lift per-customer profit by 25 percent to 85 percnt (Reichheld, The Loyalty Effect)
  • Retaining an additional 2 percent of customers has the same effect as cutting costs 10 percent (Davidow & Malone, The Virtual Corporation)
  • It is 4.8 times cheaper to sell to a pre-existing inquirer than to generate a new lead (Aberdeen Group research)

Reactivation can be viewed as a subset of retention marketing. If a customer has stopped interacting with you, this is very likely an early indicator of upcoming customer loss, or defection. So, it’s essential to identify the signals early, and set up intervention activity to prevent the customer from moving further away.

4 Key Reactivation Questions

Before you can plan your best intervention tactics, you need to develop answers to several key questions:

  1. How should you determine the definition of inactivity in your business? For many, the end result of inactivity is known as “churn.” The churn rate is derived from dividing the number of customers lost in the period by the number of customers you had at the beginning of the period. But the path to purchase differs with each business. Buying a new car is very different from replenishing your supply of moisturizer. This means identifying the interim metrics that you need to keep an eye on. A car dealer may look at oil changes as an indicator of engagement. A department store will look at the such indicators as product purchase frequency and timing, with interim metrics like email open and click through rates.
  2. What are the reasons for customer dormancy? It may be that your customers had a problem with your product or service. In which case, you must strive to fix the problem. It may be that they no longer have a need. In which case, you need to determine whether there’s another way to serve them profitably. Or it may be that they have left for a competitor. In which case, you must institute a winback effort. There are many possible reasons. A quick survey by email or phone will help you identify them Each will likely require a different strategic approach.
  3. Is the customer worth reactivating? Some customers simply cannot be served profitably. For them, it may be a better strategy to let go, instead of investing more in re-engagement. Thus, an assessment of projected customer value will help you determine the appropriate amount of reactivation investment, if any.
  4. How will you know success when you see it? For many companies, reactivation is measured by conversion to repurchase. A useful metric is the winback rate, calculated as the number of reactivated customers divided by the number of inactives at the beginning of the period. For your business, the success metric may be something different. The point is to identify the most appropriate metric in advance, and track the results of your reactivation program over time.

A version of this article appeared in Biznology, and was excerpted from the white paper “How to Reactivate Dormant Customers.”

Author: Ruth P. Stevens

Ruth P. Stevens consults on customer acquisition and retention, and teaches marketing at companies and business schools around the world. She is past chair of the DMA Business-to-Business Council, and past president of the Direct Marketing Club of New York. Ruth was named one of the 100 Most Influential People in Business Marketing by Crain's BtoB magazine, and one of 20 Women to Watch by the Sales Lead Management Association. She is the author of Maximizing Lead Generation: The Complete Guide for B2B Marketers, and Trade Show and Event Marketing. Ruth serves as a director of Edmund Optics, Inc. She has held senior marketing positions at Time Warner, Ziff-Davis, and IBM and holds an MBA from Columbia University.

Ruth is a guest blogger at Biznology, the digital marketing blog. Email Ruth at ruth@ruthstevens.com, follow her on Twitter at @RuthPStevens, or visit her website, www.ruthstevens.com.

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