The secret to improving your customer retention rate
Due to Covid-19, many organizations have slashed their marketing budgets. Typically the majority of marketing dollars are focused on customer acquisition, but with a limited budget to spend what’s the most effective way to deploy marketing dollars? By focusing on customer retention not acquisition.
Why customer retention should be the priority
Most brands spend a lot of time, effort, and money to acquire new customers; a disproportionate amount. In a study by McKinsey, 55% of current marketing budgets are spent on new customer acquisition and only 12% on customer retention.
In most cases once a new customer has been attracted and converted, brands make little or no effort to keep the customer engaged. They do this by failing to deliver a great experience with their post-purchase interactions. Typically, companies employ the standard loyalty programs and discount offers. Not a great customer retention strategy. As a result, customers become frustrated with the brand, refuse to buy again and eventually switch to a competitor.
There are many reasons why not giving customer retention the time, money and effort it deserves is a bad strategy. Here are a few of them:
- It is 6 to 7 times more expensive to acquire new customers than it is to keep a current one. -White House Office of Consumer Affairs
- The probability of selling to an existing customer is 60-70%. The probability of selling to a new prospect is 5-20%. -Marketing Metrics
- 80% of your future profits will come from just 20% of your existing customers. –Gartner
Why do so many companies still spend more on acquisition?
There are vast amounts of research to support investing an equal amount or more of a company’s marketing dollars in customer retention versus customer acquisition, why do so many organizations ignore the facts?
First, it’s easy. It’s easier to acquire customers than retain them; retention is hard work.
Second, growth. The old management adage that “companies are in business to maximize shareholder value” oftentimes drives growth thinking. The fastest way to grow and boost short-term revenue is to win more customers. The ROI is fast and measurable too, and CEOs love to report to their shareholders that the business is thriving because their customer base grew by Xpercent.
Something ironic happens when a company doesn’t pay enough attention to customer retention and their retention numbers decline—their customer acquisition costs increase.
With Covid-19, it’s more important than ever for companies to shift strategies
Brands can only fix the retention problem by fixing their strategy. They must shift their focus to providing the best customer experience. Deliver a great customer experience, and more customers will stay loyal.
Customer experience is the sum of all the interactions a customer has with a company over the course of the relationship. Examples of interactions include: researching the product, making a purchase, using the product, viewing statements, reading correspondence, calling support, visiting the company’s website and more.
The customer’s experience with any and all of these touchpoints will have an impact on whether they decide to buy from the brand or to move on to a competitor.
That’s why if a company wants to increase their customer retention rate it’s imperative they shift their strategy from selling to customers to building a better experience for customers.
It takes data and technology to create a great experience
To create a customer experience that will encourage customer retention and future purchases, a company must engage with their customers at the right time with the proper messaging; messaging that is contextually relevant to the customer’s needs at any particular stage in the buyer’s journey.
To execute on this a company will require data and technology.
From the data perspective, a company must take the time to get to know their customers. This process involves developing personas, and identifying needs and pain points along their customers’ journeys.
Customer Journey Management technologies, such as Quadient's Customer Journey Explorer, help organizations orchestrate and automate better experiences by understanding customer behaviour in real-time, intelligently interacting with highly personalized, relevant content, and delivering next-best-actions to influence customer behavior.
Legacy systems can’t cut it
Outdated enterprise technology and data silos are a real clunker when it comes to producing omnichannel customer experiences. Systems aren’t integrated and don’t talk to each other, making the data they harbour useless and un-actionable.
There’s good news though, new digital technology platforms are allowing companies to overcome this.
Customer Experience Management (CXM/CEM) technology allows marketers to manage and capture data sources along the journey and link those sources, facilitating the single view of the customer that is the foundation of an effective customer experience and retention strategy.
With this perspective companies are able to develop and deliver seamless, omnichannel communications that are timely, relevant and personalized no matter where a customer is in the buyer’s journey.
A modern Customer Communications Management (CCM) platform will bridge the gap between legacy and innovative IT deployment systems and allow for companies to produce an experience that will connect with customers and bolster the customer retention rate.
Implement a CCM solution and watch the retention rate magic happen
When post-purchase customers are reminded they matter and receive a great customer experience, they remain loyal and buy again and again. According to research conducted by Laura Lak repeat customers spend 33% more compared to new customers.
A boost in the customer retention rate translates into other increases, as well.
A 5% increase in customer retention can increase profits by 25-95% according to Bain & Co/HBR. And here’s another positive from the research firm of Emmet and Mark Murphy; a 2% increase in customer retention has the same effect as decreasing costs by 10%.
Clearly, improving the customer experience is the secret to improving the customer retention rate.
Learn more about why customer experience is the key to improving the customer retention rate by reading the whitepaper “Acquisition vs. Retention: Where Should Brands Focus”.