Building High-Growth Profitable D2C Businesses (Part 6)

Retention and Growth – 1

D2C Founder: How do I retain and grow my customers?

There are three important ideas to consider for customer retention and growth: customer-base audit, Velvet Rope Marketing, and a unified martech stack.

The Customer-Base Audit by Peter Fader, Bruce Hardie, and Michael Ross explains:

A customer-base audit is a systematic review of the buying behavior of a firm’s customers using data captured by its transaction systems. The objective is to provide an understanding of how customers differ in their buying behavior and how their buying behavior evolves over time.

It is important to note that we are not talking about “knowing the customer” through the lens of traditional market research. We are not interested in the demographic profile of our customers. We are not interested in their attitudes. We are interested in understanding their actual buying behavior.

…A customer-base audit is all about gaining a fundamental understanding of the behavior of the firm’s customers. It involves a serious engagement with the fact that revenue is generated by customers pulling out their wallets and paying for a firm’s products and services, and that any attempt to think about a firm’s revenue streams must start with a good understanding of how customers differ and how their behavior evolves over time.

According to the authors, the audit can answer questions such as:

  • How many customers does your firm have?
  • How many customers do you really have?
  • How do these customers differ in terms of their value to the firm? For example, how many one-time buyers did you have last year? How many customers accounted for half of your revenue last year?
  • How many customers who bought your products last year can be expected to buy from you this year?
  • What proportion of your sales this past year came from new versus existing customers?
  • On average, what proportion of your new customers have made a second purchase within three months of their first-ever purchase? Within six months? A year?
  • Which of your products are most appealing to your most valuable customers?

Velvet Rope Marketing is about using the customer-base audit to identify the Best customers – those with the highest CLV (customer lifetime value) – and then creating differentiated experiences for these customers. Ideally, D2C brands must create a separate SBU for such customers – because these 20% customers can generate 60% of revenue and 200% of profits. More than a loyalty program, they need a royalty experience. Here are some examples of creating memorable experiences:

Finally, to make it all possible (data gathering from the properties, experience differentiation, omnichannel personalisation), brands need a unified martech stack which has all the components integrated together:

A colleague, Nick, frames this this: “The fundamental requirement is a martech stack that is tightly integrated, with a common data model, that enables data to flow seamlessly across all systems of activation. This can be accomplished by stitching together point solutions, but it is hard, expensive, takes a lot of time, is prone to failure, and often requires significant internal resources to maintain. A unified stack is a more efficient way to go, and marketers need to be efficient now more than ever. Gartner calls this out in recent research – “Turbulence in the macro environment has cemented reliance on the integrated suite approach to the procurement of marketing technologies. According to our survey, a staggering 60% of respondents say they prefer an integrated suite approach to selecting technology. Meanwhile, just 25% say they prefer a “best-of-breed” approach.”  [Source: Gartner: Disruptions Derail Progress in Martech Utilization: 2022 Marketing Technology Survey Insights. Published 6 September 2022)]”

These three ideas and solutions – customer-base audit, Velvet Rope Marketing and a unified martech stack — taken together lay the foundation for customer retention and growth.

Published by

Rajesh Jain

An Entrepreneur based in Mumbai, India.