Understanding customer retention
While businesses tend to put majority of their efforts towards acquisition, the key industry metrics strongly indicate that it is retention that generates majority of profit. Take a look at some of the key industry stats:
- The longer the relationship with a customer, the more they spend with you. Returning customers spend up to 67% more than newly-acquired customers. (Bain & Co)
- Repeat customers also purchase nearly 30% more products per order than first-time shoppers. (Adobe)
- An increase of 5% in customer retention can increase a company’s profitability by 75%. (Harvard Business Review)
- The probability of converting an existing customer is 60% to 70%. ( Paul Farris, Marketing Metrics)
- Satisfied customers share their experience with 9 other people, while disappointed customers are likely to talk about their experience with 22 other people.
- Acquiring new customers can cost 5x more than retaining your current customers. (Alan E. Webber, B2B Customer Experience Priorities In An Economic Downturn: Key Customer Usability Initiatives In A Soft Economy)
- According to a recent study, 86% of consumers engage with a brand they are loyal to by recommending it to others. (Blackhawk Network)
How to improve your customer retention?
There is a number of ways to improve your customer retention, including:
- Provide impeccable customer service. Errors happen and they happen to everyone but it’s how you handle it and address the issues that matters. If you see reviews questioning your customer services, address them and invest in customer service training. Treat every complaint as an opportunity to win a customer back.
- Communicate and set expectations. Giving false promises or not giving enough information can be very damaging for your brand. Customer that has been let down once is highly unlikely to come back. Addressing the errors might be a costly exercise. Therefore, set expectations at the beginning co your customers are aware what they are signing up for.
- Ask for feedback and act on the information received. It will not only help you understand the why behind people’s choices and decisions but it will also give you an insight into what you’re doing well and what could have gone better. If a customer is unhappy, it will look for a way to pour the anger out and potentially damage your brand. By asking for feedback before they do so, you’re giving them an outlet to communicate their complains and an opportunity to make it up to them and keep them around.
- Give extra. I keep on coming back to the coffee shops that give me free coffee from time to time. It’s just the extra touch that costs them nothing and makes me feel like a valuable customer to them who deserves to be rewarded. Offer an (unexpected) upgrade, leave a bottle of wine, accommodate their needs (i.e early arrival) and you have a much higher chance of turning them into a loyal customer.
- Build an ongoing relationship via loyalty programme. It’s no news that a loyalty programme is a great perk to keep your customers around. Creating strong customer loyalty is an ongoing process and needs to be constantly managed and evaluated for the highest effectiveness.
- Offer an attractive referral programme. Airbnb mastered the referral programme at its early stages. It offered a great referral bonus for referring people who were looking to book a stay via their service or host. It, in return, helped them build a strong community of 150 million users on their platform. A user who recommends others to the programme is more likely to stay with the service provider as it feels obliged towards people he referred too. If you want to find out more about referral programmes, check our article here
- Get to know your customer and tailor offers to their needs and shopping styles. Asos is famous for its great data segmentation. It offers a free next day shipping or exclusive discounts depending on customer’s past purchases and interactions with past offers.
- Reward your most profitable customers. Knowing your customers is the key. Find the most loyal ones, the top of the top and offer them something unique. It will not only keep them with you and away from your competition, it will also turn them into your brand advocates (if they aren’t ones already).
When you take steps to improve your customer retention make sure you set up the right objectives and measure performance as it will help you, not only improve the results but also build a better relationship with your customers. If you wish to find out how we could help, get in touch.