Customer retention is a set of steps taken or processes implemented to reduce customer defections or churn rate.
When you retain a customer, you are retaining their lifetime value – the value of their entire future relationship with your business. Retaining customers means retaining that lifetime value — both in terms of their spend and their power to influence other potential customers.
How do you do this? By understanding the customer journey — the typical lifecycle of a customer — you can identify where you have weak points that cause defection and uncover opportunities to improve. Once you’ve identified why your customers are exiting to your competitors, then you can act to retain them.
Why does Customer Retention matter?
Studies have shown that it’s cheaper to retain existing customers than it is to find new ones. Given this, the effect of retention on profitability can be huge: increasing customer retention rates by 5 percent can increase profits anywhere from 25% to 95%. Why? Because you’re in a much better position to realize the lifetime value of a given customer. And the impact of retention goes beyond retaining this lifetime value. Effective customer retention strategies also result in those existing customers becoming “promoters,” which refers to the concept of NPS® and the opportunity to grow your business through word of mouth marketing. Simply put: Happy customers not only spend more, but they create more happy customers.
How do you retain customers?
Customer retention relies on understanding the needs of your customers and addressing them before they have an opportunity to exit to a competitor. Doing this effectively is predicated on effective listening. If you aren’t adequately capturing customer feedback about your products or services, then it’s nearly impossible to retain them in a cost-effective manner.
Here’s a good way to visualize customer retention: Your marketing and sales funnel leads to a bucket of existing customers. Every bucket has holes in it, though — some bigger than others. They can result from issues like poor employee training and engagement, lack of dedicated resources or investment, or unaddressed customer needs. Customer retention comes from fixing these holes in your leaky bucket — and thus, keep more existing customers and realizing more of their lifetime value. What do these bucket fixes look like in the real world? Well, anything that will make your customers happy — but these could include special deals and savings, customer experience improvements or customizations, personalized communications and offers, and so on.
Schedule time with one of our CX experts and let us help you find and fix the leaks in your customer bucket. The Medallia Experience Cloud is trusted by the world’s leading brands to power exceptional experiences that help retain customers and drive financial impact.
