Make Customer Retention Your Brand’s Superpower

Although acquiring new customers is key to a brand’s growth, customer retention — keeping existing customers engaged — is just as critical to a brand’s success.

One reason: Attracting prospects and converting them to customers via advertising and marketing to a broad audience is appreciably more expensive than marketing to existing ones. The much-cited statistic about customer acquisition costing five times more per individual than customer retention is no longer a hard-and-fast rule; for one thing, marketing and advertising options have changed dramatically in the past several years. Depending on the industry, the product and the audience, the cost differential could be lower — or much higher.

Then there’s the fact that while some existing customers might make just one or two purchases, others repeatedly buy from the brand. Eliciting additional — and greater-value — purchases from these consumers is easier than doing so from first-time buyers. These proven customers already know and trust the brand, which suggests a portion of them might even be brand advocates, extolling the brand’s virtues via social media and word-of-mouth: another reason customer retention strategies are vital.

Finally, do not discount the importance of customer retention as a canary in a coal mine regarding an organization’s overall health. A decline in customer retention — AKA an increase in customer churn — generally points to larger problems in the brand, such as decreasing product quality, subpar service or a failure to keep up with consumer trends. Determining and addressing the causes of the increased churn will not only enable the brand to retain more customers but also help it gain more new ones.

How to Measure Customer Retention

To calculate an organization’s customer retention rate (CRR), start with its total number of customers at the end of a time period. Next, subtract the number of new customers acquired during that time frame, then divide the resulting number by the total number of customers the business had at the beginning of the time period.

When calculating CRR, organizations need to clarify their definition of a retained customer: It can’t simply be someone who purchased once over the course of the organization’s existence. Whether a brand defines a retained customer as one who bought within the past three years or one who resubscribed to a service within the past six months depends largely on the typical sales cycle for the company’s product. For instance, people generally buy milk appreciably more frequently than they do bedding.

An ideal customer retention rate would be 100%, or close to it, but figures vary greatly by industry. Among 10 industries analyzed in a recent study, the average CRR was 75%; however, while companies in the media, entertainment and professional services industries had an average customer retention rate of 84%, hospitality and travel brands was only 55%.

As important as the CRR itself is how it changes over time. Also important are complementary user retention metrics such as repeat purchase rate (the number of customers who made more than one purchase divided by the total number of customers) and existing customer revenue growth rate (comparing the revenue generated from existing customers at the beginning vs the end of a given time period). These help pinpoint whether the brand is retaining its most or least valuable customers and whether loyalty is flagging. For instance, a high CRR but a low repeat purchase rate or a flat customer revenue growth rate suggests significant disengagement among customers, which could be a precursor to churn.

How to Improve Customer Retention

Customer retention strategies begin with research: understanding why loyal customers keep coming back and why other customers stopped engaging with the brand. Review feedback collected by the customer team, and survey both existing and lapsed buyers to ascertain customer preferences regarding products, service and the shopping experience. The very act of seeking feedback, incidentally, can help strengthen customer retention and loyalty by showing consumers that the brand cares about their opinions.

The obvious next step in a customer retention strategy is to resolve any major problems — long customer service hold times, prices that are appreciably higher than those of competitors, a glitchy website, shoddy merchandise. If there are no glaring issues, the following customer retention tactics have been proven to help.

Broaden Customer Support Options

Consumers use multiple channels to discover brands and make purchases, so be sure to offer customer service and support via multiple channels as well. Beyond the standard phone number and email address, consider website chatbots and social media support accounts. And if customer retention rates dip over time, revisit your customer service metrics to see if the decline coincides with increases in average wait times and resolution times, among other KPIs.

Personalize Offerings

If “one size fits all” ever aided consumer satisfaction and customer retention, it certainly doesn’t now. In a recent survey, 51% of consumers wanted to receive personalized marketing from brands. The same survey revealed that 82% of returning customers wanted brands to acknowledge they’d purchased from them previously, and 69% wanted the brand to reference their past purchases when communicating with them — for instance, not recommend a product they’d already bought.

Another type of personalization entails tapping into customers’ passions and catering to their emotions. Psychographic segmentation enables brands to organize customers by their lifestyles, interests and purchasing drivers and then to appeal to each group’s attitudinal characteristics accordingly. Overlaying behavioral segmentation on top of this can show the most effective channels to reach each group.

Differentiate from Competitors

If customers consider a brand’s products or services a commodity, they’re more apt to abandon it if another company comes along with a cheaper or more convenient offer. Customer retention depends to a significant degree on demonstrating why they need to stay with this particular brand. Targeted experiences and personalized messaging go a long way toward providing a point of differentiation, but it’s also important to reinforce the brand’s other unique selling propositions. Don’t assume that even loyal customers remember what those differentiators are.

Reward Loyalty

While marketing and selling to existing customers is certainly less expensive than trying to acquire new ones, it is not free — or at least it shouldn’t be. Loyal customers should be treated like the valuable assets they are. An effective loyalty program does just that, increasing customer retention as a result.

Some organizations eschew loyalty programs, believing that offering loyal customers discounts is leaving margin on the table. There are (at least) two things wrong with that line of thinking. For starters, customers who are taken for granted are more susceptible to promises and offers from other brands. Customers want to be treated as special, which is part of the power of personalization.

The other erroneous assumption is that discounts are synonymous with loyalty programs. Implicit rewards such as exclusive products and experiences, concierge service and members-only contests and content can be equally effective customer retention techniques.

At Material, we’ve used advanced behavioral science, data analytics and segmentation to design loyalty programs and customer retention strategies for organizations in myriad industries. By creating affinity between brand and customer, as well as by using gamification and other tactics to drive habit formation, we help boost customer retention and loyalty with a focus on lifetime value. Contact us today to discover how we can do the same for your brand.

FAQ

How can data help brands improve customer retention?

Using customer data to segment buyers by their purchase drivers, interests and other attitudinal characteristics enables a brand to better personalize its messaging and offerings. And that’s important because there is a direct correlation between personalization and customer retention. Customers are more likely to continue shopping with brands that make relevant, tailored offers.

What are some key tactics companies can use to increase customer retention?

After ensuring its products, service and buying experience meet an acceptable standard, a brand can reinforce among customers its unique selling propositions to drive home the message that it meets shoppers’ needs in a way no other company can. Engaging with customers on an individual basis — such as recommending products based on their previous purchases or sending personalized messaging after they’ve hit certain milestones — shows that the brand values them not just as shoppers but also as people. Using gamification to make engaging with the brand a habit can boost not only repeat purchases but also long-term customer retention, as can rewarding the best customers with both explicit and implicit rewards.