Customer Retention Guide

2. When should customer retention activity start?

Retaining customers begins almost before the first ‘real’ contact a customer has with a company. Retention can be strongly influenced by the way its existing customers talk about the business – meaning that the pre-reputation of a company can influence preferability and favorability in potential new buyers, even before they have bought.

As Warren Buffet has said, “It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you’ll do things differently.”

This phenomenon has given rise to “word of mouth” marketing and other terminology. Fundamentally, many commentators argue that a company’s brand is basically its reputation, and that early positive word of mouth and general positive sentiment surrounding a company can very much affect interest and favorability to buy, even before a first official contact between potential customer and company has happened.

Once first contact between a customer and a company has taken place, good customer service companies will continue to plan the customer life-cycle throughout the entire lifetime of the relationship, encouraging the newly-won customer to perpetuate the word of mouth.

4. Does retaining customers have a proven impact on profit?

The generally accepted view is that selling more to an existing customer is both cheaper in terms of marketing outlay, and more profitable in terms of sale, than selling to a new one.

Most businesses want to be as profitable as possible and to grow as much as possible. However, customer churn kills that growth dead. When it comes to growth, so many companies focus solely on the top line (acquiring new customers) and forget that the gap between the customers you win and the customers you lose is what matters. Growth can only be attained through mastery of BOTH of these factors, not just one. Customer retention is a critical part of profit and profit growth.

Wikipedia’s entry on retention cites research by John Fleming and Jim Asplund which highlights that “engaged customers generate 1.7 times more revenue than normal customers, while having engaged employees and engaged customers return a revenue gain of 3.4 times the norm.”

This article in CMO magazine is very useful, and outlines the case for why retaining a customer should outweigh customer acquisition.

6. Do companies who are good at retaining customers also have good customer satisfaction?

Customer satisfaction plays a big part here, but how is not always as clear. Research shows that customer satisfaction is a definitely a driver for keeping customers. There does appear to be an association between customer satisfaction and retention, although how much effect one has on the other varies greatly depending on the industry, the customer themselves, the product involved, the market and so on.

In a 2015 study by Accenture, 56% of U.S. consumers said the number of brands they consider for a given product or service has increased significantly over the past 10 years. This highlights the importance of good customer retention since the internet has given consumers access to hundreds or thousands more products and suppliers than they may have had even just a few years before.

Chiming with our point 7 below, McKinsey agrees that satisfaction does have an impact on retention, highlighting in their research that inconsistency of satisfaction with an experience is a critical improvement point for businesses:

“Our research indicates that since 2009, customers are valuing an “average” experience less and have even less patience for variability in delivery. In addition, companies that experience inconsistency challenges often expend unnecessary resources without actually improving the customer journey. Making additional investments to improve the customer experience without tightening the consistency of experience is just throwing good money after bad.”