For many years, companies followed Vilfredo Pareto's "Pareto Principle" when it came to dealing with their customers. It says 20% of your most loyal customers will generate 80% of your revenue. There was a time that this was true and all you had to do was to focus on that 20% and the money followed. However, as consumers' purchasing habits evolved and customers were exposed to multiple touchpoints, this revenue figure of 80% started to decline. In addition, marketers went to acquire new customers through mass marketing and lost their focus on customer retention. According to the"2019 Product Benchmarks Report" by Mixpanel, the average eight-week retention in many industries is below 20 percent.
New customers are good for business. They generate revenue but, how profitable are they compared to the existing ones? The researchers had answered this during the recent past. According to research done by Frederick Reichheld, the person who invented the NPS (Net Promoter Score), increasing customer retention rate by 5% can reflect an increase of profit by 25% to 95%. And according to a Harvard Business Review report by Amy Gallo, acquiring a new customer is 5 to 25 times more expensive than retaining an exciting one.
Even though the facts are all there, most companies are still doing the total opposite. This might be reflected in your marketing budget by the time you read this. If you take a company's marketing budget and split it across the customer life cycle, 70-80% of it would have been allocated to build awareness. And awareness funnel focuses on new customers not to keep the exciting ones. So there's no doubt that this is the time to re-evaluate your marketing and customer retention strategies and I believe this article will be a great help.
Before talking about increasing customer retention, let's talk about loyalty. I'd rather prefer explaining it from a social perspective. Think about a football fan for a minute. Have you ever heard of someone that changes the club they support over time? Have you seen how hard they defend their club on social platforms even after a shameful defeat? And how convincing they are and how passionate they are when they talk about the club? They sometimes sound like they own the damn club. I think this could be the ultimate loyalty that any brand or company can expect from their customers. It's not something that you can buy through offering a loyalty card. It has to be earned.
So how do you earn loyal customers and increase your retention rate? It's easier said than done. It's hard to scope all the things that you have to do to earn trust and retain your customers. But enclosed are the major four pillars of customer retention.
How much you know about them is important in many aspects. Knowing a customer personally will help you offer them a personalised experience. Let's say you have a system that gathers customer data, including their personal data, this allows you to then automate a birthday message with a special offer tailored to that customer. Data also allows you to gain an idea about which products you should introduce to customers and when. Maintaining such data also helps you understand your customers' lifetime value and makes decision making a lot easier. It's not only personal data that matters, but you also have to understand their experience. Customer journey mapping is the way to understand what your customers experience through their interactions with you. These maps can guide you to recognise and address the possibilities of bad experiences before they even happen.
To prove this theory of knowing your customer, let's consider an industry that has a better retention rate. Think about your hairdresser. How long have you been using the same hairdresser? Most of us would say "forever". The experience we get with her/him is personal to a level at some point, we even share our secrets with them. They know your preferred hairstyle and they even adjust the room temperature to make you feel comfortable. So if we know our customers well enough and the experience they go through, we have the possibility to retain them in the long run.
There was a time that we all had this little box for customer feedback. At most companies, this was right next to, or on top of the shredder. We really didn't care about it until it went digital. Now it's online and everyone gets to read it. Companies try their level best to avoid a bad review from happening. We have to understand that reviews are a single element of customer feedback. Customer feedback can be divided into two main categories as direct and indirect.
Direct feedback is what you get through reviews, surveys and focus groups. There are plenty of tools out there to help you with such surveys, but when you make decisions based on them, you have to make sure that the data you collected is free of errors and the answers are not deceptive
The reason is that, how many times have your customers said that they love the food at your restaurant and never returned? That has something to do with social psychology. Most of us act as highly rational people in front of others. Even when answering a survey, we will say what other people want to hear. This is why organizations like Google and Apple don't depend much on such surveys anymore. They hire behavioural scientists to conduct behavioural research and change their products and service strategies depending on this feedback. But for us, this type of feedback still means a lot and if you know your customers well and if you can get feedback from the loyal ones, then the data will be less deceptive
When it comes to indirect feedback. These are the things that the customers never say to you but will be reflected in the month-end accounts. Let's say a considerable amount has been reduced from your monthly sales. That could be an indirect response by the customers to something you did wrong. It could be a response to some changes in your product's functionality, new features, problems with usability, reliability, customer service experience, your offering or pricing. It will be challenging, but you have to understand and address those indirect feedback.
When customer feedback is addressed correctly, you have to make the customers feel valued by reaching out to them to ensure that their feedback was heard.
Every product or service has an intended value. That's what customers expect when they make a purchase decision. If you can offer something beyond what they expect, they will most likely become a loyal customer. Most companies offer purchasing discounts, after-sales services, loyalty programs and much more to create this extra value. A good practice of creating extra value through the customer journey is by enabling self-servicing options at most of the touch points.
Think about banking for instance. If you have to choose between Online banking and Telephone banking, what would you prefer? We always prefer logging into our account and perform a transaction with a 2-factor verification rather than waiting for a banking officer to answer our call and to go through a lengthy conversation to verify ourselves where you have to pronounce your mother's maiden name saying " A for Apple and N for Needle' and so on. So creating this extended value with a self-servicing customer experience will help to retain your customers.
This is the ultimate stage (the football fan club stage) where customers fall in love with your brand and become loyal. For anyone to fall in love, they need to feel a connection, you have to build that connection through your product or service. If you think for a moment, how many of your customers know the story behind your company or product? Have you considered it as relevant? It may not be relevant for an initial purchasing decision, but it's important to build the connection and this relationship. If you consider Steve Jobs and Apple as 2 different brands, Steve might have more value than all the Apple products in total. That's because people love what he believes and this is why you should share your brand story with your customers.
We can talk hours about how to build this relationship but let me sum it up with a story. A boy called Alex Smith went on a road trip with his dad one day. Along the way, he saw a construction site where they cut off trees and he felt sorry for nature. He wanted to make people feel the need for trees and he was always thinking of a way to make this childhood dream a reality. One day in 2013, he came up with an idea of a portable treehouse that doesn't require any wood to build it. It's the world's first tree tent and you need three trees wherever you want to set it up. The product is amazing, it saves trees and it makes us feel the need of having more trees. Right now these tents are all around the world including Australia and most of the customers believe in Alex's dream when buying them. Not only has he shared his story with the customers, But he also makes them feel that they belong to his story. With every tent you buy, you contribute to a project that plants trees. And within seven years Alex has managed to build a loyal customer base around his brand "Tensile".
Alex Smith's award winning tree tent
As a mid-size business ourselves, we have embraced these pillars for over a decade. Our focus is always to build long term win-win relationships with all our clients and our very 1st customer - Victorian Educational Furniture is a great testimony.
Customer retention is pivotal to survival and growth for any business regardless of the size of the operation. Impacts of COVID19 specially has been an accelerator for many businesses whether they were towards prosperity or towards bankruptcy.
If you are unsure on where or how to get started on building an effective customer retention strategy and what platforms to use - we are here to help!
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