Tuesday, December 16, 2014

The Secret to Customer Retention

Image courtesy of featureset
I originally wrote today's post for InsideCXM. It appeared on the site on September 15, 2014. 

Want to know the secret to customer retention? I'll tell you, but first a story.

I grew up on a farm in Ohio and, as a young girl, had many horses over the years. One of my horses was named Rusty, and he was what many would call "barn sour" and "herd bound;" he either didn't want to leave the barn or leave the other horses. I hadn't thought about this horse or those terms in a long, long time, until I stumbled on a story the other day about a barn sour horse.

I do sometimes find inspiration to write about both customer and employee experiences in the strangest ways, but that story got me thinking about this blog post that I needed to write about customer retention and how to keep customers coming back. For the horse, his desire to stay in the barn was clearly driven by the fact that he loved his food, his stall, and his companions. All the things that made him feel comfortable and loved.

Probably not so different from what keeps your customers coming back, too.

If only companies we do business with understood that - if only they knew what they truly needed to do to keep us coming back, to keep us feeling loved. If only they would shift the ratio of acquisition : retention focus to be more about to how to keep the customers they already have than on how to acquire new/more customers.

I've posed this question before: What happens when companies spend huge sums of (marketing) dollars on customer acquisition when they can't even keep the customers they have because their products, services, and experience stink?

I don't think I'm going out on a limb here to say: "Customer retention is paramount to acquisition!" As a matter of fact, this isn't an original thought at all. The stats speak for themselves.
  • A 5% reduction in the customer defection rate can increase profits by 25-95%. -Bain & Co/HBR
  • A 2% increase in customer retention has the same effect as decreasing costs by 10%. -Emmet and Mark Murphy
  • The probability of selling to an existing customer is 60-70%. The probability of selling to a new prospect is 5-20%. -Marketing Metrics
  • Customer profitability tends to increase over the life of a retained customer. -Emmet and Mark Murphy
  • 55% of current marketing budget is spent is on new customer acquisition and only 12% on customer retention. -McKinsey
  • It is 6 to 7 times more expensive to acquire new customers than it is to keep a current one. -White House Office of Consumer Affairs
  • A 10% increase in customer retention levels result in a 30% increase in the value of the company. -Bain & Co
  • Most important marketing objectives? 29.9% think it should be customer acquisition, and 26.6% think it is customer retention; however, 62.2% admit that they concentrate on customer acquisition, with only 20.6% focusing on customer retention. –Emarketer
  • 80% of your future profits will come from just 20% of your existing customers. -Gartner
  • A 10% increase in customer retention yields a 30% increase in the value of the company. -Bain & Co
  • Repeat customers spend 33% more compared to new customers. -Laura Lake
And yet, companies continue to focus on sales, sales metrics, and customer acquisition. It becomes a never-ending vicious cycle, if you can't keep your current customers. In talking to clients about the perils of focusing more on acquisition and sales rather than on the experience and retention, I like to say: "As fast as you're bringing new ones in the front door, current ones are running out the back door." Some refer to it as the leaky bucket syndrome.

I don't get it. Don't get me wrong; I do know that acquiring customers is important, I just wish that companies would put at least as much effort into keeping the customers they already have. If they did, they wouldn't have to work so hard to get new ones. Not that they wouldn't need them - you always need customers to keep the business alive - but your existing customers would become an extension of your sales force and do some of the work for you. And save you money!

So, what should companies be doing? Here's a hint:

82% of consumers in the U.S. said they stopped doing business with a company due to poor customer experience. -RightNow
To focus on delivering a great customer experience (which you know by now I've defined as memorable, remarkable, personalized, emotional, and consistent), companies must improve the customer experience. How? Here are some tips.
  • Know your customers. What's their story? Who are they, what are they trying to achieve with your products or services, and how are they going to do that or use them? Personalize the experience for them, as well... knowing them means never having to ask!
  • Map the customer journey. Understand the steps they walk to get the job done, to do what they are trying to do when they interact with your company. You can't improve the experience without first knowing what the experience is.
  • Be easy to do business with. Simplify the customer journey and your processes along the journey. Don't forget about the multichannel experience and the omnichannel experience.  
  • First impressions are important. Everything from truthful advertising to the greeting at the door or on the phone - if you make a great first impression, you're well on your way to delivering a great customer experience.
  • Exceed expectations. Customers have expectations about your products and services, whether those come from advertising, reviews, or what they've heard or what they know about your brand. Your brand promise sets those expectations. Without question, live the brand promise, be remarkable, delight, and do so every time.
  • Hire the right people. Don't just hire them, train them and make sure they know what your expectations are for delivering a great customer experience. 
  • Remember that the employee experience drives the customer experience. There's a ton of proof to support this premise.
  • Communicate your purpose. This simplifies the hiring process and both customer acquisition and retention. Both customers and employees want to be aligned with brands with purposes and values similar to their own.
  • Listen to your customers. Always. In whatever mode they want to speak to you or provide feedback. Pick a metric and measure it, but don't focus on the metric - focus on the improvements. Listen, learn, act, and improve.
  • Build long-term trust relationships. Not transactional or opportunistic relationships.
  • Communicate. Early, often, proactively, honestly, candidly, and transparently.
  • Quality. Don't forget that if you sell crappy products or deliver crappy services, customers won't come back. Period.
  • Be different. In a world of commodotized products, delivering a great customer experience is a differentiator. Figure out why customers (would) choose your products and services over others.
  • Last and lasting impression. Appreciate the customers you have. Always say "thank you." In words and in actions.
I know the title of this post states that I'm going to tell you a secret. Ready? What's the secret to customer retention? You need to work at it; it's earned, not assumed.

The brands that succeed wildly don’t just give people a reason to choose, they give people reasons to believe and to belong. And they work hardest of all to give people more ways to matter. -Bernadette Jiwa


  1. Great article Annette! Now the question is: what did you do to expand Rusty's comfort zone so that he could leave the barn and leave his pals?

    1. Thanks, Eric! It was a lot of hard work, persistence, and consistency, and a very bruised tailbone (mine).

  2. Annette, thanks so much for sharing your story about your horse Rusty. It's absolutely true that customers want to feel loved or at least that a business really does care and appreciate their business. Your tips are right on target. Rich

  3. Hi Annette,
    Surely the first step is to start by believing and then treating your customers as fellow human beings that you value and respect. Does everything not flow from there?


  4. Annette, what you say is blindingly obvious (sorry if that sounds rude).

    What fascinates me is that rude as I am so few companies pay any attention. Why on earth is that?