Get closer than ever to your customers. So close that you tell them what they need well before they realise it themselves - Steve Jobs
Did you know that it’s 25X more expensive to acquire a new customer than to retain a current one. By boosting your retention efforts by 5%, you can increase profits by 95%. But how do you reach these figures? What are the right tactics and strategies?
Firstly, is there even a difference between retention and loyalty? Of course there is. Retention is a measure of an existing client continuing to do business with you. Loyalty is a behavioural disposition that suggests a customer will consistently respond towards a brand, Vision Edge
So what really is the goal of customer retention? Is it to get as much money or as many purchases as you can? Or is it something far more valuable such as the quality of customer relationships? Retention is often proof of this quality, it’s something that offers a far more emotional measure.
The reality is to develop this bond with a person requires many components, including trust, but these relationships are formed from your customers very first touch. Many companies assume that customer retention will start after a customer has made a purchase, but in fact it begins with the very first interaction between the customer and your brand. Great first impressions will ensure that your ‘customer will actually engage with your product or service and that they are empowered to find repeatable value’ in it. Usermind, 2019.
But do we want retained customers?
The real aim is to have loyal customers, not just retained customers. Loyal customers continue to buy from your brand and have positive behaviours and feelings towards it. How do we get loyal customers? Through good customer experience.
Retained customers continue to buy from you, but loyal customers have a behavioural disposition that suggests a customer responds favourably to your brand. According to McKinsey customers are eager for you to get to know them. In fact, 80% of customers want brands they engage with to get to know them better.
So how do we understand our customers better? We can understand customers better by gathering and segmenting lots of data on them. Who they are, what motivates them and what do they want to achieve?
McKinsey designed a compass model which helps organisations plan a customer-satisfaction program to identify customer needs, wants, stereotypes and emotions. Analysing your customers perspectives will help you to align your customer-experience programs to their needs, which in turn will help your brand better understand your customers and how to connect to them through different touchpoints of the customer journey.
Amazon is an often used example of a brand that actively tries to retain their loyal customers by analysing their behaviours. They create a FOMO (fear of missing out) around a sale by advertising it to all customers but making it accessible to Amazon prime customers only. Regular users feel as if they are missing out and desire access to the special sales that prime members get.
Amazon has also worked hard to make their Amazon Prime memberships easy to sign up to and unsubscribe from, which safeguards customers’ trust by enabling them to cancel at any time if they do not approve of the service. As a result, Prime members are loyal. In fact, 98% of Prime members keep their membership because they feel confident in the customer experience that they are receiving. Additionally, Prime members spend 4 times more than non-Prime members, demonstrating brand loyalty.
Amazon also uses information they collect from their customers to create personalised customer experiences. According to Forbes, 79% of customers are only likely to engage with an offer if it’s personalised to their behaviours and previous spending habits. Amazon sends personalised emails to their customers based upon their spending habits or previously viewed items.
Strong brand-customer loyalty of course inspires long-term relationships but more powerfully it influences advocacy and recommendations. Word of mouth is the strongest marketing strategy for any brand: people are 4 times more likely to buy from your brand when they have been referred by a friend, demonstrating that customers appreciate relationships more than the cost of a brand’s products or services.
In reality,
86% of buyers will pay more for a better customer experience even if another brand is selling a product cheaper.
Your loyal customers will still buy with you due to the strong emotional bonding and relish in sheer joy they experience every time they interact with your brand. As we said before, it is cheaper to “retain customers than acquire new ones.” It’s all about understanding your customers psychology and motivations behind what makes them tick. It’s not easy for a brand to analyse a customer journey precisely with all relevant touchpoints and interactions precisely monitored. Many marketers think that success at certain touchpoints instantly conveys customer success. They are wrong.
Daniel Kahneman understood that the first time a customer makes a purchase, their decisions are impulsive and they act on emotion. The second purchase is much more logical: customers take time to make decisions and conclusions over the product they are purchasing. Brands both need to position themselves as reliable so that customers turn to them when they are looking for dependable results and connect emotionally to their customers to encourage impulsive decision making.
The expectancy theory, which postulates that customers will behave or act in a desired way because they are motivated by a desired action or result, is used often by businesses to anticipate the way in which customers behave. An example of the theory in action is when customers who try to avoid registering for a product or service out of fear of getting excessive communications from a company decide to register after being given a loyalty point incentive from a brand they trust.
Is it brand love or brand ties that are really in action? Bendapudi and Berry suggest that
‘customers stay in a relationship with a service provider for one of two motives’: because they ‘have’ to stay in a relationship or because they ‘want’ to.
The best practice is to analyse your customers’ behaviours and discover the emotions that customers consider when they are looking to re-purchase. When you measure your customers’ emotions, you are more likely to be able to understand them and find the best strategies to retain them personally. In fact, customers who feel emotionally connected are more likely to spend twice the amount they otherwise would have with your company.
Another key measure that many larger businesses use to indicate the quality of their customer relationships is Net Promoter Score (NPS). NPS is continually under increasing scrutiny, as it tracks moments in time, and really only absorbs the extremes in customer sentiment. Today many businesses are realising that using a mix of qualitative customer satisfaction measures, from text ranking, to personal calls and email surveys gets them a more detailed understanding from a customers perspective.
At Pomegranate, we like to go deeper, using a technique called Emotional Ignition which measures a customer’s brain activity to analyse their emotions when engaging with your brand. These emotions can be assessed to give you a real idea of how your customers emotionally connect with your brand and whether they believe they are receiving the best customer experience from you. This information empowers companies to apply personalisation strategies to help keep customers loyal.
Learn more with our 5 keys to repeat business webinar