There’s a sizeable number of business clichés that long ago lost any particular meaning—“buy low, sell high,” for example. But there are still a couple that have as much pertinence today as the day they were first conceived, and here’s one:
It costs roughly five times as much to attract and convert a new customer as it does to retain an existing customer. (Works about the same for retaining employees, too.)
And while that fact alone speaks for itself, it doesn’t stop there. Relationships with existing customers can be leveraged for repeat business and new customer referrals. So it’s no surprise that customer retention strategies continue to be, and always will be, a top priority.
How do you keep customers from defecting? Many companies see loyalty programs as the ideal, one-size-fits-all answer. And if it were up to us, an incentives provider, it would be just fine if that’s how it worked. But in reality, there are three main types of customer defection. Each calls for a different kind of response, and consumer loyalty programs are appropriate really for only one of the three types.
Type 1: Natural customer defection will take place
Some customer defection is to be expected naturally. Maybe your product or service just wasn’t a good fit for the customer. Or maybe the sale was always destined to be a one-off. For example, a family might eat at your restaurant only once, even if they loved it, because they were just passing through town.
Natural defection reminds us that a realistic customer retention goal is always well under 100 percent, and it’s based on what works for your business. You don’t want to waste money trying to grow a customer retention program that’s maxed out, but you also don’t want to miss an opportunity for improvement, either. That family passing through? As far as customer retention strategies go, it might be smartest to do nothing. But you might also consider planning an expansion to more restaurant locations.
Type 2: Frustrated defection due to poor customer experience
Some customer defection has to do with a poor customer experience. Most often, this is some combination of lousy service, poor communication and/or customer complaints that were not dealt with well.
To prevent frustrated defection, you need to make sure that your people have the basics of customer service down. Make sure that your front-line employees interact with your customers in only positive ways. Answer customer complaints in a timely fashion. Make customers feel like you’re on their side. Resolve problems quickly and respectfully. And don’t hesitate to use appeasement giveaways to show you value the relationship.
This is critical: If customers feel that getting satisfaction is more trouble than it’s worth, well, they won’t take the trouble. They’ll simply move on. And be motivated to share their bad experience with others.
Type 3: Defection through default
The third category of defecting customers isn’t making a conscious decision to leave. They like you, and just need a little nudge to get them to purchase from you again. This is where a loyalty program, which can also feature rebates, is the appropriate action.
Hawk Incentives has worked with many businesses to give potential loyal customers that much-needed nudge. We’ve helped bring their customer retention strategies to life, through customer loyalty programs with prepaid cards, and many times the exact issue was defection by default.
Identifying why new customers do not choose to become loyal repeat customers is the too-often neglected first step in a successful customer retention strategy. And as is often the case with first steps, it’s important that you get it right. Otherwise, you could be launching a customer loyalty program when you should first be launching a customer service improvement program. What type of defection is your organization facing? Take the time to identify it first, then take action.
3 ways to improve your customer retention strategy
In case you could use a little help getting your wheels turning, here are just a few of the most common reasons why your new customers aren’t becoming the long-term customers you hoped they would.
Make an impact on employee turnover.
While many of us would prefer to believe our product/service is so good that buyers will eventually get over a small customer service blip, better think again. A study by the American Society of Quality Control showed that 68 percent of defecting customers leave because of the indifferent attitude of a company employee. And as Jeff Haden of Inc.com reminds us, “Customers don’t buy from companies. They buy from people—your people.” Therefore, you may want to think twice next time one of your veteran employees gets the itch to look elsewhere for a job. Their customer relationships might just be walking out the door with them.
Introduce more focused upselling strategies.
Another of the most overlooked customer retention strategies involves making sure you don’t try to sell your current customers things they don’t need. If a sales prospect has seen enough value in one of your products to take the plunge, that’s great news. But be sure you don’t eventually forget the particular problem they needed a solution for, and then try to push another product on them down the road that’s completely irrelevant to their situation. When you do so, you’re telling them you weren’t really listening the first time you did business together. This leads to a loss of credibility and trust that usually can’t be recovered.
Advance customers through your rewards program.
What if you already have a loyalty/rewards program, but it just isn’t getting the results you had hoped for? Have you ever considered that maybe some of your customers aren’t participating in the “reward path journey” because the mere thought of getting started feels like too much effort?
We won’t get into all the nitty gritty details here, but allow us to introduce you to the time-tested theory of artificial advancement, which works by giving customers an attractive head start toward the reward finish line right from the very minute they climb aboard your program. For example, why do you think frequent flyer credit cards always offer a sizeable chunk of bonus miles upon signup? Because it works.