5 Critical Factors That Drive Customer Retention Strategies
Customer retention marketing is a key driver of growth and long-term profits for any business. While some businesses still value the acquisition of new customers over developing a deeper relationship with current customers, it’s actually counterintuitive based on what we know about the lifetime value of existing customers. For those who have seen the light, here are some strategic customer retention strategies that can go right to your bottom line.
The acquisition marketing bias is reflected in the marketing budgets of companies. The fifth annual Marketing Budgets Report for 2014, published by Econsultancy, found marketing budgets to be the most upbeat in the five-year history of the survey. Another finding was the continued bias towards acquisition marketing over retention marketing. This can be seen in the following chart from that report.
Why would there be a growing focus on acquisition and a shrinking focus on retention given what we know from studies on the subject. It defies common sense. Bain & Company and the Harvard Business Review have studied the value of customer retention. Statistics from their studies are often cited in the field of retention marketing. The numbers don’t lie. Here’s a small sampling.
- It’s up to 7 times more costly to attract a new customer than it is to retain an existing customer.
- A 10% increase in customer retention levels result in a 30% increase in the value of the company (Bain & Company study)
- A 5% increase in customer retention rates increases profits by 25 to 95 percent.
- If online retailers retained 10% of their existing customers, they would double their revenue (Adobe).
There are many other statistics out there that show that existing customers have a better ROI than acquiring new ones. On the face, companies appear to get it. According to the eConsultancy Cross Channel Marketing Report 2013, 70% of companies responding admit it’s cheaper to retain a customer than to acquire a new one. Only 12% disagreed that they achieve better ROI by investing in relationship over acquisition marketing.
Why the Disconnect? I’m not sure. It may have to do with the fact that it’s easier to measure the ROI of acquiring new leads and customers versus the more complicated metrics of retention and lifetime value. According to the Retention Science eCommerce Marketing Survey 2014, only 23% of marketers are tracking the rate at which their customers churn, and fewer than 40% are tracking customer lifetime value.
In that same survey, 70% of marketers admit that that their retention marketing efforts are only average, poor, or need improvement.
If you want to upgrade your customer retention marketing efforts, then here are some key strategic points which should be a part of your retention marketing strategy:
1) Begin with Your Customers
Businesses need to take a more customer-centric approach to keep them engaged. Understand what your customers are seeking and provide them a personalized experience. One way is to use the data available from their transactions, behaviors and demographic sources. Big data and predictive analytics can also contribute insights for your customer profiles and personas.
2) Manage Expectations
Perception is reality. If you don’t manage customer expectations, the customer will set their own expectations for products and service. If you want to build better relations and retain customers then it’s important to set client expectations early; the earlier the better. A good strategy to cultivate customer loyalty is to under promise and over deliver on customer expectations. Remember to not set expectations so low that customers are turned off by them.
You should be able to deliver more than what your customers expect. That’s the secret to keeping customers. It comes back to knowing your customers.
3) Go Above and Beyond
While this is tied to expectations, its worth noting in its own right. It’s going the extra mile to far exceed customer expectations. It is one of the most important steps you can take to build a customer loyalty. Be proactive. Address customer issues before they even know they have one. Surprise and delight them!
4) Measure Lifetime Value
You will likely not be able to prioritize retention marketing without calculating the lifetime value of customer segments. Customer lifetime value is a prediction of all the value your business makes over a period of time derived from a customer. Doing them can be complicated and time consuming. That’s probably why so few companies are actually calculating it. This information will be eye opening and may make businesses rethink how they care for their existing customers and their acquisition marketing bias.
5) Improve Customer Service
Customer retention marketing and an outstanding customer service experience go hand in hand. According to a study by the Gallup Group, customers who experience a "courteous, willing, and helpful" were nine times more likely to be engaged with a brand. “Gallup has noted that enduring relationships result only when companies pay attention to meeting the important emotional needs of their customers. And these needs aren't met by faster service but by better service.” Remember: 68% of customers leave because they are unhappy with the service they receive.
These five building blocks of customer retention marketing are essential. Whatever tactics you may choose as part of your strategy, make sure you begin with them. Remember the effects of customer retention compound over time. Even a tiny change in retention rates can multiply over time.
If growth and long-term profits are what you are seeking, then make customer retention a priority.