Customer Retention Strategies Overview

Customer Retention and Measurement of Satisfaction

• Customer retention involves ongoing efforts to keep existing customers engaged in business
• Activities increase repeat business and improve the profitability of current customers
• Company success depends on attracting and retaining customers, product/service quality, customer perceived value, and reputation
• Although the importance of customer retention is recognized, proactive strategies are not always implemented
• The modern trend emphasizes recognizing loyal customers and creating an environment that encourages repeat business

Defining Customer Retention Strategy

• Acquiring new customers is more expensive than retaining existing ones
• Many companies lack a formal plan for maintaining customer relationships
• Some companies prioritize attracting new customers over retaining existing ones
• Sales teams often focus on initial sales, neglecting customer retention
• Inconsistent follow-up, checking in with customers only when business is slow, doesn't foster strong retention
• A well-developed retention plan continuously meets current customer needs, explores new ones, and reminds customers of their value

Customer Value

• External customers are familiar with products, services, and policies. They frequently purchase without needing a sales pitch and are open to new products
• Internal customers (colleagues, departments) are essential for smooth operations and need nurturing to maintain smooth operations
• Long-term customers want to feel valued, and incentives like discounts or special events can increase engagement
• Treating customers as valued partners ("marrying" them) fosters lasting loyalty
• Nonprofits must prioritize customer retention to maintain donations and volunteer support

The Financial Impact of Customer Retention

• Many marketing programs focus on attracting new customers, neglecting existing ones
• Understanding churn, defection rates, and CLV (Customer Lifetime Value) helps businesses understand the financial impact of losing customers
• Metrics like churn rate, defection rate, and CLV are used to quantify the importance of customer retention
• A decrease in customer defections can lead to significant profit gains

Understanding Churn

• Churn rate measures the percentage of customers who leave a business over a given period, compared to new customers
• Churn = (Number of defections) / (Number of new customers)
• Defection rate measures the percentage of customers who leave a business within a year
• Defection rate = (Customers who left) / (Total customers)
• Customer lifetime value (CLV) is the net present value of profits a customer generates throughout their relationship
• CLV = (Yearly profit) x (Customer lifespan in years)

Example Scenario (MoviePlus)

• Churn rate calculation example for MoviePlus
• Defection rate calculation example for MoviePlus
• Customer lifetime value (CLV) calculation example for MoviePlus

How to Tell If You Need to Improve Customer-Retention Programs

• Questions to assess customer-retention programs:
  • Measuring customer satisfaction?
  • Priority on customer satisfaction?
  • Measuring and communicating quality standards?
  • Training customer service providers?
  • Employee turnover rate?
  • Spending to keep current customers?
  • Cost of acquiring customers?
  • Customer defection rate?
  • Processes for getting customers back?
  • Delivering on promised service?

What is Customer Retention Strategy?

• Businesses often overlook the importance of customer retention, believing a great product/service is enough
• Effective customer retention marketing is a key revenue driver
• Customer retention strategy is focused on keeping customers loyal to a brand
• The goal of a successful client retention plan is helping businesses maintain customers and their contribution to business growth

Developing a Customer-Retention Program

• Successful customer-retention programs focus on manageability and alignment with organizational goals
• Building meaningful relationships and communicating value beyond business transactions is crucial
• Key strategies include follow-up calls, visits, exclusive events, personalized greetings, reminders, coupons, and newsletters

Measuring Customer Satisfaction

• Crucial to assess customer satisfaction regularly to provide exceptional service
• Collect feedback through surveys across a broad customer base; thoughtful questions yield actionable information
• Understand customer experience from the customer's perspective; surveys should be short (take little time to complete)
• Pre-paid postage can encourage response (customers should not need to actively drive the process) to improve response rates

Sources of Information for Measuring Satisfaction

• Informal surveys
• Comment cards
• Verbal feedback
• Historic data (Point of Sale)
• Sales data
• Corporate surveys
• Internal discussions
• Focus groups
• Toll-free numbers
• Customer Intelligence

Advantages of Measuring Effectiveness

• Assessing effectiveness uncovers weaknesses allowing for timely adjustments and improvements
• Identifies new customer needs enabling program tailoring
• Customers often need prompting to share ideas/issues; their insights are valuable
• 5% increase in customer retention can lead to 25-125% increase in profit

Why Surveys Do Not Always Reflect Reality

• Common methods (surveys, comment cards) don't always reflect real customer satisfaction
• Dissatisfied customers are more likely to respond to surveys
• Satisfied customers may not have the time / motivation to respond to feedback requests
• People sometimes misrepresent themselves, skewing survey results
• Unreliable surveys yield a skewed view of customer satisfaction

Customer Retention Strategy Examples

• Starbucks (loyalty program, tiered rewards, mobile payments)
• Amazon (Prime membership, free shipping, exclusive services)
• Coca-Cola (experiential campaigns, flexible product adaptation, targeted campaigns)
• Hilton (personalized hospitality, rewards based on customer activity)

Key Takeaways

• Personalization, added value (privilege memberships, exclusive benefits), flexibility (adapting to customer concerns), and consistency (regular engagement) drive brand advocacy