Customer Retention: Show Them You Care

4th Oct 2017

Most companies realise that retaining their existing customers is important. But do they realise just how important? Here’s a much cited article from the Harvard Business Review which gives some insights into the economics:

The key dynamic is that, because of all the costs and risks associated with recruitment and on-boarding, customers don’t become profitable immediately. But it’s not just cost – repeat customers spend at a higher rate once they have been in business with you for a while. Here’s the key diagram from the article:

Customer Life Cycle Graph

The combined result of these factors is that increasing customer retention rates by 5% increases profits by something in the range 25% to 95%.

So, retention is important. But in practice it doesn’t always get the attention it deserves, and it can be easy for retention activities to drop off a company’s radar. Justifying the spending can be tricky, as demonstrating that an activity has increased retention can be complex to do rigorously; and the spending can be a soft target to cut when there are cost pressures, as the profit impact isn’t immediate.

Another heffalump trap is to think that good, or even perfect service is going to drive repeat business. Maybe your product ‘does exactly what it says on the tin’, but you can’t rely on that – it’s necessary, but not sufficient.

Think about your electricity supplier, for instance. The service works, perfectly, every time. Every time you switch a light on, illumination immediately follows. But has this perfect service induced any real loyalty on your part? Or would you switch suppliers for a material reduction in price.

But in practice most companies get beyond these hurdles, understand the importance of customer retention, and have activities with that target as their objective. Let’s assume you’re doing the basics, which are widely documented online, often by companies trying to sell you expensive systems. The relevance will depend on your business and situation, but here are a few:

  • You’ve got a proper Customer Relationship Management system in place, populated with the relevant data and a process for keeping it up to date. You know your customer; or at least your system does.
  • You’ve got a well thought through customer communications programme in place, with relevant and timely content. Perhaps email surveys and the like.
  • Any complaints from customers are well handled. It’s difficult to overstate the importance of this, as studies have repeatedly found that customers who have had a complaint satisfactorily resolved are far more loyal than those who never had a complaint in the first place.
  • You’ve got a programme for reactivating dormant customers. So long as the dormancy isn’t the result of a bad experience with you, it is much easier to revive these than to recruit a new customer from scratch.

But here’s the thing. You’re doing all this and more; but so are your competitors. And is it really addressing the reasons why people are leaving you? Here’s a table from another study:


The big one, obviously, is does the customer believe you care about them. A number of the activities mentioned above touch on this to some extent, but there’s one we haven’t mentioned: send them a gift. It doesn’t have to be much, it really is the thought that counts. Something unexpected, something they can share with their team, something they can take home for the family. Something that shows you do care about their business.

The business case will write itself.

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