Almost as long as we’ve been in the loyalty space, we’ve chafed at the limitations of “customer loyalty” and “loyalty programs.” Those terms seemed too narrow for what we and our clients were trying to achieve.
We’ve recently shared some thoughts about the many business challenges “loyalty” can address that might not appear to be the goals of a “loyalty program.” For years, we have believed and stated that meaningful customer engagement is not a program or promotion, but a way of doing business. Now, some innovative thinkers have begun to provide a framework that complements our approach so well, we’re making it integral to our practice.
While the Golden Age of loyalty programs may be in the rearview mirror, businesses still have the imperative of retaining their customers – it is too costly and inefficient to try to fill the bucket with new customers to replace the ones who are leaking out the bottom.
Welcome to the Retention Economy.
Central to the Retention Economy perspective is the metric, Net Revenue Retention. As a technical concept, NRR was defined by Elie Ofek, Barak Libai and Eitan Muller for Harvard Business School in a 2024 publication. They explain how data can be used to “pinpoint the type of revenue changes taking place, i.e., in what way(s) existing customers are spending differently, and explain NRR’s potential role in guiding customer management decisions.”
Naturally enough, NRR emerged from subscription-based businesses, where retention and churn have always been the biggest threat to customer value and long-term profitability. But we believe the Retention Economy mindset is critical to virtually all verticals and business models.
A focus on measurably improving NRR takes the strategic and tactical factors and metrics traditionally assigned to loyalty, CRM, customer marketing, and win-back, and places them at the core of basic business strategy.
What does recognizing the Retention Economy mean to us as practitioners, and to those charged with growing and protecting Customer Lifetime Value?
It means that rather than building and optimizing loyalty programs, we are in the business of helping marketers identify vulnerabilities in customer spend and other valuable behaviors, using data to understand the drivers of churn, attrition, and reduced purchase velocity, and developing actionable strategies to fix those gaps and maximize CLTV.
Before prescribing any particular approach, we conduct an audit. This includes an analysis of retention economics, and uses financial modeling and behavior mapping. Based on the audit, we develop an actionable roadmap to durable and profitable customer relationships. We’ll be sharing more details of our approach, and look forward to lively dialogue around ways to succeed in the Retention Economy. Your thoughts?