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Startups’ Guide To Supercharging Customer Retention For 5-6X Returns

25 Mar'23 | By Inc42 BrandLabs

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One of the fundamentals of Industrial Revolution 4.0 involves leveraging the latest technologies like AI, IoT, robotics and more to automate processes and achieve the best possible output in real time.

Although marketing is considered both a science and an art, martech today is closely related to the advanced digital technologies of the new tech era, helping startups automate critical marketing tasks to increase efficiency and optimise their reach. This is vital as the Indian startup ecosystem (the third-largest in the world) is in the midst of a deepening funding winter and must adopt a tech-focussed lean approach to create radically successful businesses.

To explore and analyse how best startups can thrive in this challenging environment, Inc42 has partnered with global martech product company Netcore to host a multi-city event called The Growth Mindset. Essentially, it brings together decision-makers across product management, marketing, CRM and growth to dive deep into the latest trends and best practices required for success.

The Inc42-Netcore initiative recently held a panel discussion in Mumbai titled A Guide To Building A Successful Customer Retention Strategy. The session looked at many critical aspects, including:

Why customer retention is critical to business success: Cost savings, potential revenue growth associated with repeat customers and more
Understanding the importance of personalisation: Knowing the customers’ needs, preferences and behaviours to tailor the retention strategy and build strong relationships
Tips for building a successful customer retention strategy

Moderated by Sujatha Menon, associate director at PwC India, the panel discussion included Avadhoot Revankar, chief growth officer & business head at Netcore Cloud; Konark Gaur, CMO at the beauty and personal care D2C brand Pilgrim; and Saunak Ghosh, Senior VP & CMO at the insurtech startup Turtlemint.

Why Customer Retention Is Critical For Growth

Any successful business/startup will have three essential elements – product, branding and a loyal fanbase (read repeat customers). And the last one is crucial for driving profitability.

“I don’t know of a single profitable business which hasn’t been built on a hardcore base of loyal customers who frequently buy, month after month,” said Gaur of Pilgrim.

In fact, many industry experts often cite the Pareto Principle, or the 80-20 rule, saying roughly 80% of revenue comes from 20% of (repeat) customers.

“In spite of this, more than 80-90% of the marketing budget is invested in customer acquisition rather than customer retention,” rued Revankar of Netcore Cloud.

But the onset of the funding winter in 2022 (which saw investments in the Indian startup ecosystem decline by 40% YoY) became a turning point. Stung by macroeconomic issues and geopolitical unrest, venture capitalists have cut the fund flow into Indian startups, exposing the fault lines in the growth-at-any-cost concept. Clearly, startups that look to grow by onboarding new users at high customer acquisition costs (CAC), now find it tough to get ahead.

As investors urge founders to focus on profitability and sustainable growth, startups are turning towards a surefire but often overlooked growth strategy – customer retention.

Revankar explained how this cost-efficient solution would deliver incredible results.

“The marketing spend (X) by startups to acquire new customers via ads on Facebook, Google and its ilk usually generates 2-3X revenue. But if you spend the same amount on existing customers, you can get a 5-6X return,” he said.

How To Build A Powerful Retention Strategy And Avoid Pitfalls

Martech platforms like Netcore and the like use AI-ML, big data and more, to map a customer’s digital journey across touchpoints based on their purchase history, behaviour, engagement span, intent and more. By removing data silos and giving a unified view, Netcore ensures 360-degree personalisation so that customers are engaged at the right time with the right content, said Revankar.

Ghosh of Turtlemint also emphasised the importance of utility-driven content to boost customer retention.

“We follow an ongoing engagement model and conduct masterclasses to enrich the lives of our customers,” he said. “The [content] helps them understand certain nuances when choosing the right health insurance or the time for a top-up or something more,” he added.

When developing customer retention strategies, another concern that plagues startups is communication frequency. In simple terms, how much will be too much and how soon will it overwhelm customers?

According to Revankar, content bombardment may cause attention recession and leave a negative impression. Hence businesses/startups must be extra careful and strike the right balance.

Gaur concurred, saying Pilgrim would always follow engagement rules based on RFM (recency, frequency, monetary value).

“If people haven’t interacted with us recently, say for more than six months, we don’t engage with or invest in them. But with high-value customers, the upper limit can be three to five communications per week,” he added.

Going forward, startups will increasingly explore gamification when tailoring customer retention strategies. Revankar thought that bringing gamification to age-old loyalty programmes would usher in a new digital experience and better traction. He called it “the rebirth of loyalty programmes”.

Additionally, consumers today are increasingly looking for brands with an aligned purpose that goes much beyond profit. According to the 2021 Edelman Trust Barometer findings, 68% of consumers believed they had the power to change corporations, and brands’ involvement in societal issues was highly rated. Be it gender/workplace inclusivity, dealing with climate challenges or serving the economically challenged, startups supporting social causes are bound to hold a competitive edge when such narratives have pride of place.

However, Gaur insisted that such purpose-led branding must be done strategically by emerging startups with no contradiction in their P&L.

“Purpose-led branding has to run deep and be very well integrated. Otherwise, it’s a photo op which will perhaps only travel a short distance,” he concluded.