Understanding customer retention Research & Trends In reaction to the recent change in the retail landscape, leading retailers have launched initiatives to understand and drive improved retention. Deloitte conducted a series of executive interviews in June and July 2010 across retail sectors that revealed just how acutely the customer brand loyalty issue is affecting the industry and a variety of innovative and leading practices. The consensus is that customers are leaving at a greater rate overall, and unlike previous periods, those that are leaving span a greater spectrum of the customer base in terms of annual spend. We found four leading practices that can be used to evaluate the current retention situation and formulate a strategy for addressing the fundamental reasons for customer migration. 1. Get The Basics Right And Track Them Continuously Start by measuring the basics of retention behavior on a regular basis to answer three questions: how often do customers make a purchase, what types of purchases are those customers making, and what is the value of those purchases? A specialty apparel retailer we spoke with tracks a series of basic customer behavior and retention metrics on a rolling 12-month basis. By synthesizing basic recency, frequency, and monetary (RFM) metrics in concert with more sophisticated behavioral markers (such as an abandoned online shopping cart analysis), this retailer identifies their valuable customers and targets marketing actions designed to increase profitability. 2. Develop Usable Analytics Develop customer engagement analytics and research to gain a more in-depth understanding of key drivers of retention behavior. One retailer we interviewed learned that new customers who remained active beyond their first year as a customer were five times more likely than others to remain customers for multiple years into the future. Customers found to be lagging in their interactions were treated with marketing strategies designed to stimulate retention- driving behaviors. Conversely, those customers with higher quality and levels of interaction were not offered marketing treatments or discounts. This strategy, enabled by predictive analytics, allowed the retailer to focus marketing resources where they would count most. The consumer has changed, and so, too, should the way you measure loyalty. by Matt McNaghten and Clark Passino Published in RetailSolutionsOnline.com, June 2011 As used in this document, “Deloitte” means Deloitte Consulting LLP., a subsidiary of Deloitte LLP. Please see www.deloitte.com/us/about for a detailed description of the legal structure of Deloitte LLP and its subsidiaries. Certain services may not be available to attest clients under the rules and regulations of public accounting.