Customer Retention Strategies – Ranked by ROI
- Even with new customers coming in, company revenues, growth and valuation deteriorate when too many of those customers leave through the back door.
- Customer retention strategies improve short term revenues and create a multiplier impact to long term company growth. Managing customer retention is an imperative to achieve a sustainable growth business.
- Systemically keeping your customers longer is a complex endeavor. However, research brings clarity to the challenge and the most direct and effective solutions.
I learned long ago that asking clients what business growth strategies or tactics they would like to pursue is not always a helpful question, in large part because they generally don't know all their options. A better approach is to demonstrate the available options and let them assess and select.
This is a process we use when identifying the best customer retention growth strategies for any particular company. Below is a list of customer retention strategies that surfaced when producing the Customer Service Excellence Report. We explore these as part of our Art of the Possible workshops. It stimulates creative thinking and gives clients confidence they haven't overlooked any options.
Below are some of the key insights and takeaway lessons for each strategy.
I'll start with innovation as it was the infamous Peter Drucker that said, "Because a business's purpose is to create a customer, it has two, and only two, functions: marketing and innovation. Marketing and innovation create value, all the rest are costs."
The continuously accelerating commoditization of products and services deteriorates revenues and margins and eventually makes any company irrelevant. Innovation is the response to commoditization. It is the process of converting a novel idea into a unique product, service or experience that creates value.
This may include creating new products and services, improved products and services, or new ways for customers to acquire, consume, use, experience or benefit from products or services. Continuously delivering new and innovative products and customer experiences is one of the most effective customer retention strategies.
Two top methods to win a sale or retain a customer are to have a better solution or a better customer relationship. Customer relationships are an extraordinarily effective retention strategy. In fact, when customers incur repeat frustrations with the company, it's most often the customer relationship that prevents churn.
Customer Relationship Management (CRM) is a business strategy aimed and growing mutually rewarding and profitable customer relationships at scale. CRM software enables that strategy. The technology provides the automation, information and repeatable processes to achieve the strategic goals, such as growing and retaining customers. CRM strategy and CRM software are symbiotic. Powerful together, but ineffectual apart.
Customer Experience Management (CXM)
Delivering differentiated customer experiences that appeal to customer emotions is no easy task but is proven to create customer affinity and retain customers. Everybody wants to feel valued.
CXM is the business strategy to achieve customer experiences that go beyond basic satisfaction and achieve more emotional goals. The objective is to design interactions that make customers feel delighted, appreciated, valued, engaged or rewarded – and make those experiences memorable. CXM starts with a customer-centric culture and then defines the customer strategy.
Attempting to use CXM without a customer-centric culture is a fool's errand. Customers are smart. Management self-proclamations suggesting the customer comes first, without a real customer centric culture, is quickly recognized as lip service. Authenticity is essential.
Companies don't get to decide how customer-centric they are, customers do, and they will make their opinions known in social media and elsewhere. And like any other retention strategy, CXM is only a sustainable customer strategy if it delivers ROI to the company. Fortunately, it is shown to support the sale of higher margin products and premium services. Research from PWC found that companies that create strong customer experiences also charge a 16% premium for their services.
Companies cannot rely on infrequent, impersonal and inauthentic engagement to keep their customers. Customers are more connected to the marketplace, have more options and expect their brands to deliver relevant, personalized and contextual communications.
A customer engagement strategy shifts the customer conversation from a one-way, vendor-initiated monologue to a two-way, customer accepted dialogue. If the vendor communication is simply the delivery of self-serving promotions and offers, it's not going to be much of a retention strategy.
Engagement is also not about the frequency of communication; it's about creating a dialogue based on the value of content or conversation from the customers perspective. Communication over social channels using customer insights can achieve customer engagement at scale.
The research found many companies focus their customer strategies almost entirely on new customer acquisitions and give customer service short rift. That imbalance is short sighted as it will fail to retain those customers that were so important to acquire.
Customer service is where customers go before they go away. When they incur challenges with their vendors or products, they seek customer support to fix those problems. When that fails, the customer seeks a new vendor. On the flip side, good customer service is proactive, resolves the issue, delivers a differentiated customer experience, follows up with a satisfaction survey and takes action when quality of service falls short. Good customer service maintains the customer.
The Peppers & Rogers Group published some research that found 60 percent of customers stop dealing with a company because of what they perceive as indifference on the part of salespeople. However, customers who feel their salespeople are exceptional are 10 to 15 times more likely to remain loyal.
Many salespeople become complacent and falsely believe that because they have been around for a while, they will be given preferential treatment with new sale opportunities. That's not really true. Only when salespeople provide expertise and insights that customers find valuable do they achieve trusted business advisor status and create a relationship that advances continued sales and customer longevity.
Voice of the Customer
Except for some squeaky wheels, most customers who leave don't say why. That's in large part because they are not asked. A much higher number of customers will share their feedback if asked.
A Voice of the Customer (VoC) program can be used to seek customer feedback proactively and periodically. Too often, if customer feedback is captured at all, it's captured by a department, stored in a data silo, not shared across the company and not correlated for customer analytics. Customer feedback delivers the most strategic benefits when used holistically across the company. R&D may use customer input to improve products or services. Sales may use feedback to improve offerings, design more attractive bundles, alter prices or understand why they win or lose deals. Marketing may use customer advice to improve offers, campaigns and engagement. The contact center may use input to improve service and increase customer satisfaction.
Each of these are valuable. However, they are exponentially more valuable when correlated across departments and customer segments. Customers will tell you what they want if you ask them, but simply listening doesn't lower customer churn. You have to act. You have to collect, harvest, correlate and implement programs that fix customer friction points or improve customer experiences.
The more customers spend with your company, the less likely they are to churn. Customer expansion, sometimes called product expansion, uses customer intelligence to develop pricing models that encourage customers to consume more of your solution or position relevant up-sell, cross-sale or bundled products. Customer expansion is measured by customer share or customer lifetime value (CLV).
The goals of a strategic loyalty program are to create engagement with the customer, harvest more customer intelligence, grow customer lifetime value, increase customer longevity and shift customer affinity from products to the brand.
Unfortunately, successful loyalty programs are the exception. Forrester reports that two-thirds don’t work. But when properly designed, they are extraordinarily effective in retaining customers. While loyalty programs are normally implemented in consumer industries, their counterpart, business advisory councils or customer success programs, can be used in business-to-business industries.
Keeping your customers is aided when serving their personal and professional needs. Customers care about more than just products and services. That's why branding is not just about differentiating the company and its products but also striking emotional chords with customers. Branding is a complex topic, but successful branding creates customer affinity and increases longevity.
Corporate Social Responsibility Programs
Developing relationships with customers is no easy task. A research study by the Corporate Executive Board found that only 23 percent of customers say they have a relationship with a brand. Interestingly, 64 percent of the customers who acknowledged a relationship named shared values as the primary reason.
Many people prefer to do business with companies that resemble themselves in some way. It's an unconscious bias called implicit egotism. Corporate Social Responsibility (CSR) programs pursue moral or altruistic goals shared by the company and its customers. Customers like to stand with companies that stand for something. For most companies, CSR programs will align with their shared values and community affiliations.
At Johnny Grow, we donate time and money to autism groups and programs. To be clear, the founders did it prior to the company ever being founded, and we don't do it for business reasons. That's kind of the key. If customers share our passion to aid people with autism, we welcome them and find a source of common engagement. If they don't that's okay too.
Other retention methods discovered in the Customer Service Excellence research responses included nurture campaigns to maintain top of mind awareness, continued product education programs, online customer communities and turning product sales into subscriptions. Regardless of the strategies chosen, it's essential that they be woven into an overall customer retention growth strategy supported with best practices, and backed up with dedicated resources, systemic business processes and measured execution.
Don't Forget to Respond to Lost Customers
Losing customers is demoralizing but if there is a silver lining it's the opportunity to learn from each loss. Consider the two below customer loss programs.
- Customer exit discoveries. Unfortunately, we can't retain all customers. But when customers do move on it's critical to understand why. Customer exit discoveries are surveys or interviews with customers to determine exactly why they left and apply that valuable information to reduce future customer churn.
- Recovery campaigns. Pursuing lost customers with win back campaigns can recover about one-fourth of them. Many times, former customers find that the illusion of a better alternative was just an illusion. Other times customers are willing to provide an additional chance to somebody they know.
Key Performance Indicators
As the old adage goes, what gets measured get done. Here are the KPIs to bring objective measurement to your customer retention strategy.
- Customer Satisfaction (CSAT). Customer satisfaction surveys bring objective measurement and visibility to how customers feel about the brand. CRM software can automate survey distributions, capture the customer responses and insert the content or scores in the customer record. CSAT surveys are the most popular customer measurement technique. But Net Promoter Score (NPS) is the fastest growing. However, the particular tool or technique is less important than simply implementing something to measure and act upon customer feedback.
- Net Promoter Score (NPS). Net Promoter Score is a customer measurement method created by Fred Reichheld during his time at Bain & Company. It was designed to help companies assess, measure, and improve customer loyalty and has more recently become a top method to measure and forecast customer churn.
The Customer Service Excellence research report shared that 42 percent of companies use NPS. More interestingly, 88 percent of Best-in-Class companies use NPS. That's a two-fold increase and something that should get your attention. The industry average NPS scores range from negative 8 to positive 36. However, the Best-in-Class leaders achieved an average NPS score of 57.
- Customer Lifetime Value (CLV). Measuring customer margins and profits are important but are historical indicators. CLV is different because it measures future customer value and is a powerful metric to understand how actions implemented today will impact customer share and financial streams in the future.
- Customer Health scores. These scores are calculated according to weighted factors associated with customer churn and stored in the CRM system so they can be automatically escalated upon reaching threshold values.
- Customer churn prediction. Predictive analytics normally built with artificial intelligence (AI) can forecast which customers are most likely to churn. Several CRM systems such as Microsoft Dynamics 365 and Salesforce have basic but extensible customer churn prediction algorithms.
One Last Point — an Important Safeguard
Thus far I've shared findings from the research of what can be done. There's also one overarching thing not to do. Don't jeopardize trust. Trust is the digital currency for the twenty first century and the two ways to quickly lose customer trust are being inauthentic and misusing customer data.
Brands are not what they want to be, they are what they do. Brands cannot escape what they do. If the two are different, credibility and trust are lost. And once trust is lost, the brand is viewed with suspicion and can likely never reengage the customer.
Customers trust brands to safeguard and use their data pursuant to reasonable terms. When vendors instead use customer data for monetary purposes that do not benefit the customer, or when vendors lose customer data to cyber-attacks, they fail their fiduciary duty and violate their customers trust.