In the modern landscape, Retention Lifecycle Segmentation(RLS) has emerged as a solid growth strategy for businesses aiming to deepen their understanding of both users and customers. This approach categorizes the user base into specific groups based on their engagement and payment behaviors, thus offering invaluable insights for optimization across multiple fronts. In this comprehensive guide, we'll delve into the nuances of this segmentation model, drawing distinctions between User Retention and Customer Retention.
The Dichotomy of Retention
The first thing to note is that there are two two types of retention in a product: User Retention and Customer Retention. User Retention is based on whether a user is continuously receiving value from a product (aka engagement). Customer Retention is based on whether a paying customer continuously makes purchases, whether it’s through subscription or individual purchases.
User Retention
New Users to Current Users
Every user starts their journey as a New User. By continuously interacting with the product, New Users transition into Current Users, indicating they are users that are staying with the product. New Users becoming a Current User is proof that your product is providing value that is worth coming back for.
Engagement Churn and Resurrection
However, not all journeys are uphill. A lapse in engagement places the user in an Engagement Churn state, reclassifying them as a Churned User. But churn isn’t always terminal. Users can re-engage with your product, an event termed as Engagement Resurrection, migrating them back to the Current User category.
Benefits
The reason we want to know if users are new, current, or churned is for two reasons.
Firstly, we can target different marketing, promotions, or notifications to them. New users might need more handholding, while you can send churned users reminders for why they should come back.
Secondly, segmenting users this way lets us see what part of our product experience we need to improve. Is there low conversion from New to Current Users? That means you have an early retention problem. Are there not many Churned Users coming back to become Current Users? Sounds like you need to be more aggressive on retargeting campaigns for former users.
Customer Retention
From User to Customer
If, at any time, a user decides to make a purchase within your product, they officially received the title of Customer. When a user becomes a customer, they are first considered New Customers, even if they aren’t necessarily new to the product. From being New Customer, their journey flows exactly the same as a User, except instead of measuring them by active engagement, we measure them by active payment.
This is because what we ultimately want to know is if the product has enough value for people to come and keep paying for; the continuation of is the ultimate sign of Product Market Fit. If New Customers don't become Current Customers, we know that people aren't receiving enough value for their money. On the flip side, if we see Churned Customers come back to become Current Customers, it's worth interviewing these customers, because these they likely tried other services but eventually came back to yours.
Ultimately, our goal as product makers is to have all New Users end up become Current Customers forever.
Benefits of RLS
Segmenting your users by where they are in their retention lifecycle gives us an incredible amount of leverage:
- User Understanding and Personalization: User segmentation allows businesses to gain a better understanding of their users' habits, preferences, and needs. By understanding their users' behaviors, businesses can tailor their products, services, and marketing efforts to better suit each segment's unique requirements, thereby providing a more personalized and satisfying user experience.
- Customer Retention: Retention-based segmentation can be instrumental in identifying potential churn risks before they become problematic. By understanding which users are at risk of leaving (e.g., those who've become less engaged over time), businesses can take proactive steps to retain these users, such as reaching out with personalized offers or addressing any issues they may be experiencing.
- Revenue Optimization: Knowing which users are likely to make purchases and when can help businesses optimize their revenue. For example, they may focus more resources on converting 'New Users' to 'New Customers', or they might invest in re-engaging 'Resurrected Users' who have shown a willingness to spend in the past.
- Marketing Efficiency: By understanding the distinct behaviors and preferences of each user segment, businesses can make their marketing efforts more efficient and effective. Rather than adopting a 'one-size-fits-all' approach, they can create tailored marketing campaigns that resonate with each segment, resulting in higher conversion rates.
- Product Development: This segmentation can provide valuable insights for product development. Understanding the needs and preferences of 'Current Users' and 'Current Customers' can guide the creation of new features or improvements that keep these users engaged and satisfied.
By integrating Retention Lifecycle-Based Segmentation into your strategic planning, you position your business for higher user engagement, customer retention, and overall revenue growth. The nuanced understanding gained through this approach can be a game-changer, paving the way for more effective personalization, marketing, and product development initiatives.
