"Why customers switch from one store to another? 14% because of price, 15% because of quality & 71% because of lousy service.” ~Tom Peters
"Your company's most valuable asset is how it is known to its customers." ~Brian Tracy
Everyone talks about customer satisfaction, but getting familiar with what customer retention means and how important it is to your organization is an important thing for every leader. New customers are necessary and are great, but organizations need to invest in retaining customers for their next purchase, just as much as they invest in obtaining new customers. Want to know why there are so many Loyalty Programs in travel, retail, restaurants, etc.? Because its good business. To put it succinctly, unless your customer satisfaction initiatives result in better customer retention, they are of little value. Don’t believe me? Below are five ways retention affects your organization:
Retention Leads to Profits
According to a Harvard Business School report, on average, increasing customer retention rates by 5% increases profits by 25%-95%. The reason? It can cost up to five times as much to obtain a new customer as opposed to keeping an existing one. When you have customers that stick around and buy into what you put out on a regular basis, then you are going to making money with minimal investment and effort. Even when you factor in the cost of retaining a customer with upgrades, freebies and other incentives, the benefit is clear.
Satisfaction is Never Ending
The problem with trying to work on satisfaction is that it is a nebulous goal. Customers can always be MORE satisfied. There is always a point at which it becomes unprofitable to satisfy a customer. If the focus is on retention, then you have a clear goal and a good idea of the point where satisfaction initiatives should stop. Yes, “wowing” customers has its benefits, but those benefits should pay off with loyalty. If they don’t then they are of little value.
Easier to Manage
Customer education and support are costly areas of any organization, and even more so as the consumer has raised their expectations in today’s environment. The financial benefits noted above didn’t just have to do with Marketing Initiatives to bring new customers in, it had to do with the costs associated with onboarding and support of new customers vs. existing customers that are familiar with your products and services. To put it simply, a customer who has been with you for a while needs less support, and that reduces your cost.
Retaining Customers Builds Trust
When you have a deeper history with customers that is built up over time, a level of trust builds up between you and the customer. To put it in human terms, you don’t need to spend as much effort proving yourself. This trust leads to easier adoption of new products, fewer serious complaints (where you risk losing them as a customer), and a much easier path to satisfaction.
Advocates, Not Just Referrers
The most powerful aspect of retention is in the referral process. Satisfied customers might mention that they were satisfied when asked about your product or service by their friends. Retained customers are far more likely to volunteer information and actively recruit new customers. This free word of mouth advertising is supposed to be one of the benefits of a satisfied customer, but is turbo-charged with a customer who continually buys from you.
While it's good to make sure customers are satisfied as much as possible, if you can't keep them around because they get what they want and move on, you're not getting any future value out of them. It is this future value that makes retention so much more important to your organization from a financial and operational perspective.
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