You’ve heard it time and time again— customer retention will continually result in better return on investment. But the biggest challenge for most businesses is where to begin.
To find out everything there is to know about customer retention, we chatted with Vision6 agency partner and customer lifecycle specialists, Customology who have been recently awarded the ‘Regional Loyalty Champion Award for Asia Pacific’ in the 2020 Global Loyalty Magazine Awards.
Read on to discover how to improve your customer retention rate and get a step-by-step guide on the path to re-purchase.
Why is customer retention important?
Brands invest a lot of time, money and effort into acquiring a new customer. Which is great, especially for short-term sales. However, many brands fail to recognise the lifetime value of their customers. Consider one-time purchases to multiple purchases over a long period of time, not to mention the likely additional profit from referrals. A brand is never going to successfully grow if their existing customers are leaving as quickly as new ones are being acquired. Customer retention is vital for brands to survive. It always has been and it always will be.
Gartner states that 80% of a brand’s future profit will come from just 20% of their existing customers. Acquiring a new customer costs far more than the cost of retaining them – sometimes up to 25x more¹. So if you’re lucky enough to acquire a customer, do everything you can to retain them and stop a competitor from taking them.
How much should I spend on customer retention?
We recommend dedicating at least 10% of your marketing budget to customer retention. Keep this as a separate budget. No technology investments should come from this pot. It may be used for ‘surprise and delights’ or rewarding loyal customers with a special offer/promotion. It’s for offering different incentives to keep them engaged and happy. Happy customers come back, and they bring their friends.
What drives customer retention?
Taking the time to recognise and value the customer drives customer retention. Recognising who they are, what their purchase behaviour looks like, what their preferences are. Then leveraging this knowledge to hyper-personalise your communications and their experience with your brand.
Take advantage of the Moneymoon period – this is the first 30-60 days post purchase in which the customer will likely be feeling very positive about your brand. What you do during this timeframe really matters – don’t allow buyers remorse to kick in. For example, emailing a customer post-purchase asking them to complete a satisfaction survey will not drive retention. But taking the time to recognise and value them will. Thank them for choosing your brand over others. Show your appreciation.
Ongoing recognition is equally important, it’s about understanding where your customer is in the life cycle. Only communicate with them when you have something relevant to say. There’s no such thing as ‘one size fits all’.
What is a customer retention rate and how do you work it out?
Essentially, it’s the percentage of your total customer base who come back and continue to spend money with your brand. This isn’t always easy to work out unless you have a good understanding of your customers and their spending behaviour.
Through effective analysis of customer and transactional data, you can work out which of your customers are most loyal (high value), and the customers who they are at risk of leaving. Different strategies are required for different groups of customers. It’s vital to keep loyal customers happy and engaged. You also need to give those customers who have left or are considering leaving a reason to come back.
What is the path to re-purchase?
We believe there’s far too much emphasis on the path-to-purchase. As mentioned earlier, it’s great for short-term sales – but then what? The path to re-purchase keeps customers engaged with the brand on a long-term basis, based on their unique position across the customer life cycle. Customer loyalty cannot be bought, it’s an outcome. And that outcome must be earned across multiple touchpoints – all of which must add value to the customer. It’s also a much more effective marketing approach. Marketers waste precious time and budget marketing the wrong message to the wrong customers. The path to purchase enables you to genuinely continue the conversation with each individual customer.
Can you give us step-by-step instructions on what the path to re-purchase involves?
- Recognise – the customer, a thank you goes a long way. Recognition and appreciation should come first, not a satisfaction survey or irrelevant promotional emails.
- Research – ask the customer what they’re interested in, learn more about their preferences so you can curate future messaging.
- Recommend – be relevant, personalise the conversation. Make relevant recommendations, don’t send the same message to all of your customers. Talk to them individually. For example, if I just bought a new bed, I am more likely to be interested in complementary bedroom furniture/items – not the latest range of kitchenware on sale.
- Reward – the behaviour you want to influence. For example, if a customer purchases a coffee everyday, there’s no point offering 20% off coffee – offer 20% off a food purchase, when they buy their coffee to encourage them to create new habits.
- Remind – the benefits of your value proposition. Why they chose your brand in the first place. If the product they bought has a lifespan – make it easy for them to re-order. If it’s a service (eye test, hair appointment) – let them know what available appointments are left.
- Re-engage – target incentives for lapsed customers. Offering discounts to loyal customers is counter-intuitive – they would purchase from you anyway (at full price). Find different ways to reward loyal customers and incentives strong enough to capture the attention of lost customers.
- Re-activate – churned customers need more enticing incentives but they can be targeted.
Is B2B a different approach to the path to re-purchase than B2C?
There are different layers of stakeholders involved in B2B so you may need to consider how you approach each step with these stakeholders i.e. influencers would be approached and targeted differently to decision makers, but the path to re-purchase can certainly be adopted for both.
How do you measure customer satisfaction?
Happy customers come back. It’s that simple.
A lot of brands use NPS to measure customer satisfaction. Whilst NPS is a great measuring tool, it focuses on what the customer would do; would they recommend, would they visit again. Not how satisfied or engaged they are in the present moment. Take time to ask for feedback, pick the right moment. Don’t send a customer satisfaction form before the customer has even received the product, or has literally just walked out of the store.
We recommend going on a listening tour. Get out there and speak to your customers. It’s the best way to learn how they’re feeling and identify any pain points.
Use the voice of the customer wisely. It’s not just about understanding customer satisfaction, but learning from the feedback and implementing changes which will benefit the customer.
- Dedicate 10% of your marketing budget to keeping loyal customers happy and engaged.
- Review customer and transactional data to learn more about your customers; their lifetime value, their purchase behaviour, patterns and interests.
- Use this insight to influence future behaviours.
- Put your customers on a path to re-purchase through targeted, personalised communications.
- Go on a listening tour – find out how your customers are feeling.
- Leverage the voice of the customer, don’t just measure it.
A big thank you to Customology for sharing their expertise with us. Now, go grow your customer retention with these tips!
¹ Harvard Business Review