Customer Retention Strategy
General Guidelines for Creating a Customer Retention Strategy
There are no fast and hard rules for developing a customer retention strategy, but following some simple guidelines based on research in the field will allow you to make some changes to your business, and retain more of your valued customers. Customer retention is defined as the number of customers lost over a period of time, or the percent of lost customers versus the percent of existing customers, not counting any new customers. Obvious benefits of developing a customer retention strategy include more returning customers, new customers referred by existing customers and a higher profit margin.
The best way to begin calculating a customer retention strategy for your business is to calculate the number of repeat customers your company possesses. The basic equation for this is: the total number of customers minus the number of repeat customers then divided by the total number of customers. It can be easily quantified through product dollar amounts based on: 1. Repeat business. 2. The customer’s willingness to pay the asking price. 3. Purchase frequency. 4. Customer recommendations to friends. This will give you an idea of how you need to develop strategies to keep more of your customer base. While it is contrary to popular belief, many studies reveal that there is little correlation between customer satisfaction and customer retention. Of course satisfying clients is extremely important, but most people feel that one satisfying experience with a company would not prevent them from entertaining other offers with their next purchase.
Most experts agree that a customer’s repeat business is determined by intangible criteria, a combination of their perceived value of the company and of the product (quality and cost) and their emotional values (trust, service and past experience). Basically, when choosing a company, most people base their decisions on their emotional thoughts of that company. So you will want to ask yourself: What do customers think of my company? How can I improve how customers perceive my company?
A recent survey of company executives found that a large number of employees do not believe in the value of their own company. If employees don’t believe in their own company, then the effort to win the hearts of customers is greatly impaired. So goes the value of employee retention. Going back to the notion that most customers base purchasing decisions on their perceived notions of the company, then you are looking to have your employees have a direct and positive engagement with your customers. A good way to improve your company’s employee retention and to improve customer relations is to improve employee loyalty through research and analysis to more effectively train, recognize and reward employees who improve customer relations. This process will result in higher customer retention.
Next you will want to focus on building customer loyalty. Improving how your employees interact and serve your customers will help increase the positive notions of your company in your customer’s eyes. This will build up their perceived value of the company, but creating customer loyalty schemes will make them choose your company’s products. There are too many types of loyalty schemes to be fully discussed here, and they differ greatly based on the type of business, but generally you will want to reward customers for choosing your product, so they will return again. For example, some companies penalize customers who want to leave or change their relationship with that company. While the customer may stay unwillingly, these negative emotions and thoughts will stay with them and affect their possible repeat business. The best loyalty schemes reward customers for choosing their company, resulting in positive thoughts and feelings. Positive perceived notions about a company not only bring customers back for repeat business, but will cause them to recommend the company to friends and relatives, possibly resulting in new business as well.
A well designed customer retention strategy will increase the public’s perceived ideals of your company, and the addition of customer loyalty incentives will increase the number of repeat customers your company will receive. The overall value of this is more customers, more purchases and a higher profit yield.