Good morning,
Ever buy someone a gift, like a sweater, and it's not your personal style? Yet you get tons of emails with photos of it in different colors and matched with items you'd never wear. When a company is spending valuable dollars to track your every move online but doesn't know what you really like, that's poor customer engagement practices, according to Katrina Wong, VP of marketing at Twilio Segment.
Digital customer engagement is shaping business for brands looking to build direct relationships with customers. But with a potential recession and budget cuts, some companies are deciding to spend time and energy keeping current customers, not focusing on getting new customers.
Twilio Segment’s 2022 Growth Report found that 93% of marketing and customer experience leaders surveyed said their companies are starting to plan for a recession. And 67% said their companies are prioritizing keeping current customers over acquiring new ones. The 1,300 respondents work at B2B companies in the U.S. and U.K.
“Customer Acquisition Cost less than Customer Lifetime Value (CAC<LTV) is the equation that rules businesses right now,” Wong says of the modern key performance indicators (KPIs), which measure how effectively a company is achieving key business goals. “You need to spend less to acquire customers than you make back in the long term profit from these customers. When this equation is right, that's when businesses can grow efficiently, and when it's wrong, that's when they lose money.” In a potential economic downturn, it’s about lowering your CAC and raising your LTV as a priority across the board, Wong says.
“In boom times, you have larger budgets,” she says. “So, you can afford to go and acquire customers and do the spending. And if you end up losing a customer, just because you don't have the right engagement, you can spend that next dollar to reacquire them.”
If you’re texting with Uber, Twilio’s behind that. Twilio Segment is a customer data platform (CDP) providing a single source for customer data across every channel creating targeted profiles of customers. Companies can then use that to communicate with them via email and SMS. Or connect it to advertising tools. For example, guitar maker Fender uses the CDP to create a profile of a customer by collecting event data from its website, mobile apps, and servers, and pulling in data from cloud apps and internal databases. Fender Play music lessons app achieved a 29% reduction in customer churn rate, according to Twilio.
Getting to know your customer
How do you build engagement with existing customers to support LTV? By making sure you’re getting the right message to the right customer, at the right time, and knowing their channel preferences, Wong says. An example? If a customer buys a pair of shoes online, the right follow-up message would be a suggestion for a clothing item that would go well with the shoes, she explains. The wrong message? “I buy a pair of shoes and they follow me on the internet wherever I go,” she says. “So, I end up getting an email that pretty much is promoting that pair of shoes that I just purchased.”
Companies really have to understand their customers, she says. Or else, that holiday gift you buy for a loved one this year will haunt you. "I got my husband a shaver, last year for Christmas, and I still get all of the recommendations for all their products," Wong said. "I'm like, 'Oh wow, I'm not the right customer for all this promotion and advertising.'"
During these macroeconomic times, “What we’re seeing is more efficiency and profitability are the new North Stars for all businesses across all industries,” Wong says. “If you can understand what drives customer lifetime value, that's the key to better ROI and growing efficiently.”
However in preparation for an economic downturn, “Our [marketing] budgets are declining, right?” Wong says. “This is normal. So, we are expected to do more with less…The new movement for marketers and CMOs is to use a CDP, so that they can do better marketing,” she says. The survey found that 83% of respondents are planning to simplify their marketing tech stack within the next 12 months.
CFOs focusing on KPIs like CAC and LTV appear to be a mainstay along with longtime KPIs. “The legacy notion of certain KPIs, sales and profit, yeah, we’re going to keep them,” Michael Schrage, a research fellow at the MIT Sloan School Initiative on the Digital Economy, said at Fortune's Emerging CFO event last month. “But the way that people in the finance community, the marketing community, the HR community should engage and collaborate around those KPIs has to fundamentally change.” Employee experience, customer experience, and customer lifetime value are among the notable emerging KPIs, he said.
Keeping the customer at the center of a business strategy is nothing new. But how you do it with tech and data has certainly evolved.
Have a good weekend.
Sheryl Estrada
sheryl.estrada@fortune.com
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