Retention: Why is it a Growth Channel? — Review

When dealing with lead generation in marketing, we’re often so focused on customer acquisition that we rarely ever think about retention. In fact, ‘retention’ as a topic is so underrated that most departments operate with the mindset that getting a customer is the ultimate goal which requires no work beyond that except delivery.

To be very honest, until I came across this topic in CXL Institute’s Growth Marketing Mini-Degree, I operated with a similar assumption. We were taught that the marketing team provided the inbound leads and the rest was left to sales. In fact, until I did this course, I had no idea about the importance retention played in marketing. So this is exactly what I’ll be highlighting in this blog today:

• What is bad/good/great retention?
• Retention Rate
• Retention in the Marketing Cycle
• The Gartner Hype Cycle

Most companies traditionally spend more money on customer acquisition because of the misconception that it is the quickest and most effective way to increase revenue.Customer retention, however, is faster, and costs on average, up to seven times less than customer acquisition. Logically if you think about it — It’s so much easier to retain customers that you already have a relationship with, and it’s an effective way to grow revenue because you don’t need to attract, educate, and convert new customers. You’re essentially marketing to customers who already have expressed an interest in the product, and they’re already engaged with your brand.I t makes it easier to make the most of those experiences that they’re having with your company.In fact, retention is a more sustainable business model, and it’s key to sustainable growth.

What Does Bad, Good, & Great Retention Look Like

Retention is measured through revenue and figuring out the good, bad and great retention depends on the churn rate.

A common way of analysing retention is to look at the retention curve for a cohort of users.

Chloe Cathcart writes, “A good retention curve should flatten out and continue to do so over time. In the best case scenario, this curve would trend upwards and form a smiley face over time. This would mean your resurrection strategies are working and old users are returning to your product, in addition to all the current users staying on board.

But when your retention curve trends down toward zero, this indicates that something’s not right. Your users are disengaging with your product over time. Retention charts can give you insight into where the sharpest drop in user retention occurs.”

Here’s a small retention chart that she used in her blog:

Retention Rate and How to Calculate it

It is the percentage of customers active in a given period who are still customers in the next period. It’s often calculated depending on the time interval you take: daily, monthly, quarterly etc.. Those users who are still using your product have been retained. Those who aren’t have churned.

Retention In the Marketing Cycle

We’re all pretty aware of the standard marketing funnel and how it works from awareness to conversion. Perhaps here is where we first make the mistake to ignore the concept of retention, because the stages of marketing should be in a cycle not a funnel.

So this is how a marketing cycle would look like along with the stakeholders.

The Gartner Hype Cycle

There is a difference between hype and what actually works, however, when there’s hype there is often a wonder if the claims that the companies are making will pay-off. This led to the creation of theGartner Hype Cycle, a graphic representation designed by Gartner, of the maturity and adoption of technologies and applications and how they are potentially relevant to solving real business problems and exploiting new opportunities.
This methodology aims to give you an idea of how a product will evolve over time, and it gives you insight to manage how the product plays into your own business goals.

So, how do you use a hype cycle? Well, hype cycles help you understand the path that you go on as a customer, and what that product means to you and how it helps you in the long-term.

It is a known fact that customers can have high expectations of your product in the very early days, if those expectations are not met they enter this Trough of Disillusionment, and that’s where someone can get stuck if you aren’t proactive in rescuing them.

Then they come into this Slope of Enlightenment, where they come out of that trough.They start to understand the benefits of the product, and then they hit that Plateau of Productivity where it’s not necessarily about these heightened expectations, but really about getting the most out of your product.

There’s five different phases of a hype cycle:
The Innovation Trigger is when things get kicked off, and that can be before using the product.

The Peak of Inflated Expectations is when they get a really great success from using something of yours initially.

Trough of Disillusionment is where the person’s not having very much interest, implementation’s taking a long time.They need to see some kind of results or they’re out of here.

Slope of Enlightenment is hopefully, where they start to understand how the product applies to their business.

Finally Plateau of Productivity is where adoption really happens, and it’s at the end of this hype cycle is where habits are formed.

Hype cycles help you understand where hype comes into play versus actual use of the product. It helps people understand reducing their risk, as far as their investments go.

So in this blog I’ve covered most of the basics involving retention and why it is a major growth opportunity. How retention is measured and how it can be more useful and easier than just focusing on acquisition. If you’d like to learn more about retention and how it would work specifically for your business, I seriously recommend the CXL Growth Marketing Mini Degree where the teachers provide all the tools and sheets needed to make data driven choices about retention!