Jerry Jao of Retention Science
While whoever I ask about the biggest marketing mistakes has their own bias and provides a different response, Jerry's answers reiterate a well-known -- yet often ignored -- precept about customers and how to derive the greatest ROI from marketing dollars: namely, it costs far less to retain existing customers than to market to new ones.
Read on for his take on the subject.
Tell me a little about your background and why you decided to found Retention Science?
Both my co-founder and I had experience selling products online, from video games to comic books to electric violins. We soon saw firsthand the challenge of retaining existing clients, and just as quickly realized that our problem was far from unique. Most businesses were not – and still aren’t – spending enough on customer retention.
This was despite the clear, readily available research that said existing customers were more valuable than new ones. A Bain & Company report from as early as 2000 noted that a 5% increase in customer retention increases profits by 25% to 95%. It was inconceivable that businesses were ignoring this untapped revenue stream, so we started to brainstorming for a solution.
After a lot of research, we realized most e-commerce companies lacked the resources to figure out what their customers needed to stay engaged with the brand. We set out to build the best platform to help businesses maximize customer retention -- and Retention Science was born.
What do you think is the single biggest mistake marketers are committing today?
Not focusing and investing more time and effort on customer retention. As recently as 2012, marketers ranked “driving sales” as their highest concern while “engaging customers” and “building customer loyalty” tied for last place. The priorities should be reversed. Increased customer engagement goes into building brand loyalty, which in turn is what drives repeat purchases. Brand loyalists become advocates for the brand; the perennial example is Apple’s devoted fan base.
The very existence of the Apple Watch Edition, the $10k+ luxury version of Apple’s new smartwatch announced last week, is indicative of the power of brand loyalty. The price tag would likely have been met with laughter from any other tech brand, but because it’s Apple, the only question is whether gold or rose gold is the better choice.
How does Retention Science address that?
Marketing to the customer with retention in mind completely changes the way marketers view metrics like Customer Lifetime Value and Cost of Acquisition. Retention Science’s team of data scientists has built a platform that enables marketers to engage existing customers differently based on their interests and actions while browsing merchandise.
Our solution works on the premise that every customer is unique and deserves to be treated differently. Through machine learning technology, Retention Science can help marketers create more individually-tailored engagement, from sending the most attractive offer, reaching out to them at the most convenient time, to predicting and presenting products and brands customers are more likely to be interested in. Through Retention Science’s platform, marketers can understand their customers better using the customer data they already have, and this information can better inform their acquisition efforts as well.
Can you share some typical results when using data-driven marketing as opposed to using intuition, which a surprisingly large number of marketers still do?
Marketing via intuition is basically guessing what you think the customer will respond to. This obviously only works a very small percentage of the time, out of sheer luck; to offset the times it doesn’t address what the customers are looking for, businesses often slash prices to entice customers. This tactic, while effective, comes at a high cost to profit margins. Email messaging suffers, as well. Companies who are guessing what content their customers are interested in are more likely to send non-engaging emails that go unopened.
Data-driven marketing, however, enables marketers to understand what drives each customer to purchase and act accordingly. Past transactional and behavioral data can indicate whether a customer is more likely to purchase with a free shipping incentive over a percentage-off coupon; analyzing Customer Lifetime Value helps pinpoint the customers who are the biggest spenders. Understanding your customers also means better email communication, which means higher open rates and conversions.
Retention Science helped The Honest Company drive free trial users into paying subscribers through this personalized, data-driven approach. Customers’ behavioral, transactional, social, and demographic data were used to identify what kind of email messaging would appeal most to each customer, and the ideal time and frequency to send those emails. Incentives were used only when needed for the final push to conversion.
The results speak for themselves: over a 12-month period, The Honest Company saw a 170% increase in conversion rates from trial to subscriber. This, along with an 85% lift in average order value, led to a 130% increase in bi-annual revenue.
What steps would you recommend a new marketer or one with limited resources, such as one who works at a typical midsize with perhaps 25,000-50,000 active names in the funnel, do before launching their next email campaign?
I would advise marketers to take the time to learn about and understand their audience before trying to market to them. If a data science technology-driven solution is over budget, go old school with surveys and other ways to ask for feedback. Be thoughtful and strategic, and treat your next campaign as your one chance to engage your customers - and no matter what, don’t batch and blast.
What is Retention Science’s number one focus right now?
Growing thoughtfully. Every addition to the team impacts the world-class experience we give to our clients. We’ve been tripling in size each year, and while it’s been exhilarating, our priority is to make sure the growth is sustainable and strategic. This growth strategy applies to product innovation as well, and where we need to take our products next in order to help our clients become more successful in their day-to-day marketing needs.
What do you think of the state of tech in L.A. right now…is there a severe lack of talent or are we starting to catch up to Silicon Valley a little bit?
The LA technology ecosystem is booming! I can feel it, firsthand. Because the growth is fairly recent, the talent skews younger than those with a lot of experience. However, that gap is shrinking: there are more veterans in LA now who have sold companies before, as well as sales leaders and engineers who have managed large teams. They’ve worked through difficult scaling challenges already, and are now helping early stage companies to grow. I am definitely excited about the future of LA tech, and Retention Science is definitely going to be one of the companies leading this boom!
What is Retention Science’s own customer retention strategy?
Because of the services we provide, it’s imperative for us to practice what we preach!
What can we expect from your company in the future?
Since we’ve been tripling in size each year, and I feel the future holds more growth and even more potential. In the next few years we will be expanding into other industry verticals beyond pure ecommerce. Customer retention is a problem for all businesses, and we’re excited to take our solution to the next level. You can also expect Retention Science to host data science meet ups and help grow the tech community in LA.
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