Last Updated on
Why Customer Retention is important
Whatever type of customers your brand attracts, they all have a lifestyle. If you are a bank, they begin with pocket money and move up to a mortgage. Knowing this, companies need to be creating products that specifically cater to their customers’ needs, according to where they are in the product lifecycle. This maximizes customer retention with the brand adapting to meet their changing needs. Motor vehicle brands do this as do suppliers of alcohol. Diageo has a recruitment brand of Smirnoff and Captain Morgan and keeps customers all the way till they graduate onto single malts!
Let’s take a look at this in more detail and find out exactly what brands need to do to retain customers throughout their lifecycle.
- Focusing on Retention Decreases Churn
When you have customer churn, you are losing customers but keeping them is vital as this is much less work than obtaining new ones. Controlling churn rate is a key driver of success with brands focused on retention experiencing far less customer attrition. If your focus is on acquisition instead, your churn rate is likely to increase. Customers need to be looked after and cared for, with less time spent on purely growth. A retention-based strategy will absolutely reduce churn long term, resulting in more returning customers and therefore higher longer-term growth predictions.
- Loyal Customers Spend More
When customers are loyal and they like you, they spend more, resulting in an increase is revenue long-term. This is where providing great customer service comes into its own. Research shows that two-thirds of customers spend up to 13% more with a company that looks after them well, confirming the fact that repeat purchasers not only spend more but the transactions are larger. The longer the relationship, the more they spend hence your return per customer/per order will be higher if you keep them happy.
- Loyal Customers Spend WAY More over Their Lifetime as a Customer
If we look at customer life-time i.e. a value attributed to the amount of time spent with the company, focusing on retention increases this lifetime leading to a higher value. Statistics show that the top 1% of customers spend up to 30 times more, making their lifetime value vastly higher. Taking care of loyal customers is therefore crucial, with their frequency of buying increasing over time.
- Retention Increases Profitability
Focusing on retention also increases profitability and there are three main reasons for this; a retention-based strategy controls fixed costs; loyal customers use word-of-mouth to increase your customer acquisition rate organically and; it’s much easier to up-sell to loyal customers than new ones.
- Focusing on Retention Keeps Your Fixed Costs in Check
Of course, keeping your fixed costs in check is crucial and a retention-focused strategy does this. If you are instead trying to grow fast and sinking money into getting a sales team in place, you will find your expenses shooting up dramatically. As employees are a major expense for any company, it is much more sensible to match growth to churn rate; much better if you can make sales without the need to hire people. By trying to grow too soon and before you have attained product-market fit, you will be spending money without stemming the flow of your customer churn rate. Better to spend the time looking after your existing customers with fabulous customer service instead of hiring more people. Growing at a pace that matches your customer retention rate will do so much more to take your business forward.
- Upselling to Loyal Customers Is Much Easier Than to New Customers
As you may expect, upselling to your loyal customers takes far more effort than doing the same to new ones. Whilst upselling is a good way of increasing profits (accounting for something like 10-30% of e-commerce sales), doing a hard sell does not always pay off. Whilst upselling may result in you making an additional sale to 60%-70% of loyal customers, this drops to 5%-20% for new customers. Make your strategy a profitable one by focusing on your customer base of regulars that are loyal.
Consequences of converting a one-time buyer into a lifetime customer
When you convert a one-off buyer into a regular life-time customer, several things happen:
- Sales increase – they are far more likely to want to buy from you.
- You make a dent in the competition – their sales go down and yours go up.
- Margins shoot up – it is expensive to generate new customers so by focusing on existing, you are spending less on marketing.
- Customers will be loyal – your competitors will struggle to steal them.
- Even greater margins – loyal customers do not mind paying a little more for great service.
- Growth is far more organic – selling more to people who like you is always easier, meaning your company grows.
- You love your work – selling to people who like you rather than have to push your offerings hard is always nicer.
- Employees love their work too – customer service becomes a joy because the people you are talking to are happy.
- Less stress – few complaints to deal with.
Goodwill increases – a fantastic asset for any company to have.
Why there’s a need to target customers according to their life-stage
How to Identify and Target Life-stages
Consumers are affected by life-stage targeting so should you make use of that within your marketing? Definitely so but you must have available high volumes of both declared demographic and shopping intent data. Life stages can be hard to determine accurately as you need to know the difference between in-market and a life-stage buying. Shopping surveys can help with this; the more demographic data you can collect, the better.
You also need to get your hands on shopping-intent data to track purchasing patterns and then put both lots of data together. Accurate life-stage targeting means that you can differentiate between the varied kinds of shoppers.
Precisely Timed Advertising via Programmatic Marketing
So now you know where your buyers are in terms of life-stage so you can deliver the right ads to attract them, adding retail signals to demographic information. Do this systematically and the results will flow in. Purchases are made using a mix of user data and the attributes of the campaign. When you know what life stage buyers are in, you can time your ads to suit, resulting in precisely timed ads rather than programmatic marketing.
Creating a customer for life
Identify Coverage Gaps – do you know which customers are lacking in a product or service you supply? Your next sale could be right there, ready and waiting – you just need to identify it. Things like insurance contracts are always a good sell as loyal customers want to protect whatever they have purchased from you and will like that you are helping them to care for their valuable asset.
Maximize Customer Investment Value – point out the value in the investment by providing information with regard to benefits and tips. Get data from customers that helps you to monitor their usage and then use it to send reminders and suggestions, acting as a reliable and trusted advisor.
Evaluate Expansion Opportunities – are there other solutions you can offer? Suggest additional items that will complement their product. By tracking the lifestyle of products and offering at the right time, you can build up a regular stream of income.
Capitalize on Renewals – track renewals and target your marketing campaigns to tie in with them, such as when certain contracts are going to expire. Once you engage in this way by making use of lifecycle touchpoints, the process becomes automatic and you can spend more time on new opportunities.
Know when to refresh – if you analyse sales and product data correctly for end of life, you can engage with customers at precisely the right time. They will appreciate you looking after them and should be in a position to buy again.
How to make customers keep coming back
Develop a strong customer community – turn transactions into community-based experiences, engaging with your buyers socially. If you are speaking with them in a relaxed manner they will engage with you more easily, allowing you to market your wares gently.
Understand the value of the customer life cycle – engaging with buyers during changes in their life builds added loyalty as you can actually play an active role in major events such as them moving house or starting a family.
Personalize the consumer experience – show that you care and be genuine about it. Make your communications personal and as bespoke as possible, tallying with customer needs.
Focus on slow and steady growth – many new companies fall flat on their faces by trying to grow too fast. Don’t make this mistake; spend more time keeping current buyers happy and provide a service of superb quality rather than trying to attract lots of new clients quickly. Slow is good.
Manage both supply and demand – don’t let your supply dry up as this can greatly damage your brand and reputation. Plan ahead and if possible use statistics and software to calculate demand. Failure to do so could impact negatively upon your client base as if they cannot get what they want from you, they may go to a competitor, not just once but in the future too. Keep customers supplied and happy and they will keep coming back.