Customer Retention

December 4, 2018

What is customer retention?

Customer retention is the process of maintaining your customer base over a period of time. It is well known in business that retaining customers is cheaper than acquiring new ones. This does not mean that acquisition strategies are not important – it is essential that you capture an audience to start your business! Ultimately you want to make sure that the customers you worked hard to acquire continue to purchase your product or service, but what are the other benefits of customer retention?

Customer retention is the process of maintaining your customer base over a period of time. It is well known in business that retaining customers is cheaper than acquiring new ones. This does not mean that acquisition strategies are not important – it is essential that you capture an audience to start your business! Ultimately you want to make sure that the customers you worked hard to acquire continue to purchase your product or service, but what are the other benefits of customer retention?

It is a fact that customer retention is cheaper than acquisition. Bain and Company have found that ‘attracting new customers will cost your company 6-7 times more than keeping an existing customer’. Whilst it was highlighted above that acquiring new customers is important, this finding simply points out that keeping those customers is economically beneficially in the long-term. But remember, although retention is cheaper than acquisition, this does not necessarily mean it is easier!

Loyal customers are more profitable

Existing customers already understand your brand and your product or service. If they like the product or service, they will trust and have confidence in your brand and are more inclined to purchase from you again. According to research ‘a 5% increase in customer retention can increase a company’s profitability by 75%’. Existing customers are less focused on price as they have already bought from you. As a result, they are more likely to accept price increases, but you must be cautious not to take their loyalty for granted.

Lowers marketing costs

As existing customers are already engaged with your brand they know what you offer and how to get in contact with you. This results in decreased marketing costs as you do not need to convince them that this is the right product or service for them. This does not mean that you should not have any marketing targeted at your existing customers – they need to know that you are still there and that you want to share your latest information on products, services or business updates with them.

Listen to your customers

Listening to your customers and taking active steps in response to their feedback will earn you lots of brownie points! Customers who are willing to provide you with feedback are telling you what you need to do to earn their business in the future. This information is incredibly valuable and can be critical to the success of the business.

Look after your customers

Think about the last time you received poor service from one of your favourite brands. How did you feel? Did you let it slide as you know this doesn’t happen normally? How did the company resolve the problem if at all? Research has found that loyal customers are more willing to let some things slide, but customers who are not loyal are more than likely to switch to a competitor. This is not to say that they won’t switch if you continually provide a poor service, we are only talking about occasional human errors that you can learn from.

Long-term loyal customers are unlikely to switch to a competitor unless they have a very good reason to. Admittedly it is hard work to retain customers, ensuring they are happy with the product or service they received and keeping them engaged. BUT it would be even harder work if they switched to a competitor and you had to win them back.

With all these benefits it is clear that customer retention is an important strategy to focus on. Keep an eye out for our next blog post on customer retention strategies to understand how it can be achieved. In the mean-time if you have any questions on this blog post you can contact us at 2xN here.

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