7 Critical Elements in the Science of Customer Retention
by Robin Tinker, on Aug 30, 2016 3:36:59 PM
Not every customer is going to become a customer for life, and that's fine. Statistically speaking, it is impossible to turn every new customer into a loyal customer that returns time and time again. However, every interaction and offer is a way for you to improve your relationships with customers new and old, and better relationships mean higher retention.
A Harvard Business School study showed that improving customer retention by a mere 5 percent translated to a significant increase in profits, anywhere from 25 to 95 percent.
Establishing a strong base of loyal customers is critical to the long-term success of an organization. Attracting new customers is expensive. The American Consumer Association reported that it was five times more expensive for organizations to win a new customer than to retain an existing one. Both statistics drive home the importance of exerting energy into keeping customers to reduce costs and boost profits. The question then becomes, Why isn’t customer retention more of a priority for organizations?
No one can expect a customer to continue to actively engage with an organization for the long-term when they feel as if they are simply another sale. It’s an irrational idea in an environment where your competitors are always at your heels, clamoring for additional customers. Remember, customers need to connect with something or someone at the other end of the transaction. They need to believe in the value of a continuing relationship.
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If your company simply makes a sale and then drops any attempt to be of additional use to a customer, you will always be running after new customers while the existing ones jump ship for faster, cheaper or more responsive options. Understand the science behind customer retention, learn how to drive additional revenue and sustain a loyal base of clients for your organization.
1. Evaluate the Quality of Your Relationship
Your relationship is key to locking up your acquired customers and making additional revenue with less effort and cost than constantly prospecting. What do customers want from the company? How can you keep them with you for the long-haul? At App Data Room, we frequently request feedback on our products, encourage feature requests (which we evaluate and implement), and take the time to learn about the challenges facing our diverse customer base. Invest in your customer relationships.
2. Know and Understand Your Customer
You need to put in that extra effort to know your customers better, their preferences, motivations, and concerns to win them over to your side. Customers will stay loyal to organizations they like and that respond to their needs. Many sales people are overwhelmed by sales quotas and few take the time to continue helpful conversations once they have closed the deal. They lose out on maximizing the lifetime value of the customer to the company. Sales and marketing can work together to maintain existing customers. HubSpot recently showcased instances of how real brands are retaining customers.
A personal touch has been vital to Tesco, the supermarket giant. In efforts to come across as genuine and human, they have addressed the fact that their customers still like dealing with people. Tesco uses Twitter to execute customer service with a human touch and add personality to show that they care during customer interactions.
Takeaway: Organizations need to communicate with their customers, prospects and online audiences on their preferred channels to make it convenient and effortless for targeted parties to engage.
3. Listen to Feedback
Create a system through which customers can provide their honest thoughts and get appropriately thoughtful, uncanned responses. Customer service can be at the forefront of this effort when handling customer complaints. However, sales and marketing still need to review direct emails, trouble tickets, calls and survey responses when looking to evaluate and strengthen relationships between the organization and the consumer. R&G Technologies, an Australian IT support firm, has managed to develop strong relationships with B2B clients. How did they do it?
The biggest element in reducing customer churn is their customer satisfaction surveys. Clients can express what R&G Technologies is doing right and wrong. Issues can be proactively addressed and opportunities to go above and beyond for customers and prove value can be identified through the survey. They focus on asking the right questions to identify challenges. The provided insights inform their retention strategy and overall marketing efforts. R&G Technologies also places emphasis on the importance of one-to-one conversations with clients.
Takeaway: Consider how you can improve responsiveness to clients and how your organization can support such efforts throughout all departments and communication channels.
4. Set Clear Expectations
High standards should be set in the company, shared with clients, and most importantly, adhered to by all within the organization. Stop dropping the ball and simply do what you say you are going to do.
Strict SLAs and rapid response times can help solidify relationships with customers when they can expect a fast response from any interaction the company.
Takeaway: Get your organization on board with setting clear standards of service.
5. Patch the Leaky Ship
It is important for any organization to pinpoint how many customers they have lost as part of the calculations used to measure progress. One mathematical formula to assess retention rates is:
Retention Rate = ((CE-CN)/CS) x 100
Subtract the number of new customers acquired during a set period (CN), from the number of customers at the close of the same period (CE), and divide it by the amount of customers that you had at the beginning of the period (CS). Take that number and multiply for 100 to get your retention rate.
Example: At the start of the month you had 1,000 customers (CS), you added 50 new customers (CN), and ended the month with 1,030 (CE). The retention rate calculation would be:
((1030-50)/1000) x 100 = 98
The retention rate, in this case, is 98%.
Compare your retention rate to the average in the industry and your organization goals. Know your retention and attrition rates. Such metrics provide the means to measure progress over time. Create a plan to minimize customer attrition to allow marketing and sales teams to help grow the business. Using a significant percentage of new sales to make up for lost customers is a losing battle. Remember it is cheaper and more profitable for sales and marketing to make efforts to retain current customers than to constantly have to search for new customers to reach ever-increasing sales quotas.
6. Build a Solid Customer Base
Sales and marketing will never achieve a solid customer base when they are only focused on new acquisitions. David Ogilvy once said:
“The consumer is not a moron; she is your wife.”
In similarity to a spouse, the customer knows when they feel a genuine connection to a brand and when they receive fast and helpful advice to solve an issue. Your customer does not want to be left hanging and shifted from one customer service person to another. Also, they do not appreciate ignored emails. What does it matter for an organization to gain 30 new accounts when it loses almost as many in attrition?
The success of a company relies not only on new customers but on keeping the old and even having them become brand advocates. This depends on how you do business and how you interact once you have made an initial sale. You need to keep the ball rolling. Margaret Molloy knows:
“Great Execution is the Ultimate Differentiator.”
Harness your people and technology to better engage and continue to reap rewards from long-term customer relationships. Do more for existing customers and get more value from a loyal fan base.
7. Make the Customer Experience Mission Critical
There are fundamentals to customer experience that are often forgotten about as sales pursue new deals. Responsiveness to emails and inquiries, consistent email marketing to re-engage the customer, loyalty programs and outstanding products and services should be basic to the ways that an organization engages existing customers every day.
Every player needs to stay accountable, and organizations can build that into their expectations with simple ideas such as Buffer’s Happiness Report. Keep employees on track and motivated by showing their progress in engaging the customer. The Happiness Report shows how the company helps customers and keeps employees accountable. It also shows customers that they are focused on providing exceptional customer service.
What are fun and unexpected ways that marketing can reach out and touch old and new customers alike? Coca-Cola created additional opportunities for customers to enjoy a positive experience during the 2012 Olympics.
Coca-Cola provided customers with a “Beat Generator” app that merged the best aspect of their favorite sports, music, and the brand. The app was a win for Coca-Cola and proved eminently shareable on social media with 1.78 million impressions on Facebook and 16,500 visits to the web version.
Coca-Cola decided to anticipate customer needs and desires rather than only considering ongoing feedback. This is a major component to improving brand visibility and keeping customers focused on sticking with a winner that shares their interests and wants to create an ongoing dialogue that goes beyond products and services, reaching into their lives.
Your customer is a human being. They are wired to enjoy positive experiences. Remember that retention starts with keeping customers feeling good every time they interact with sales, employees or any branded communication. Begin by excelling in the basics and expand in unexpected ways to stand out in your industry.
What strategies can your organization come up with to elicit positive reactions and engagement from customers? What have you done to increase customer retention? Share your thoughts below or tweet us @modusengagement.