Complete Guide on Customer Retention (Definition and Best Strategies with Practical Examples)

· 10 min read
Customer Retention -complete guide
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ThinkImpact estimates that a 5% increase in customer retention leads to a 25–29% increase in sales and income.

Every prosperous business in every sector, including The Tata Group, Amazon, Apple, Maruti, and all others, started with a zero. However, they have now been successful in creating a strong brand image that has allowed them to build a group of devoted customers. And it is undeniable that every business, including ours, aspires to such a situation. But how did these businesses leave such an indelible imprint on our minds? - the answer is as simple as emphasizing client longevity in other words by retaining customers.

Read this guide to learn what customer retention is, how to measure it, why it is crucial, what motivates consumers to make subsequent purchases from a brand, which ultimately results in brand loyalty, and, finally, the best practices (derived from researching successful brands) that you can use as a guide to creating a rock-solid strategy for your company to persuade consumers to stick with your products or services.

What is Customer Retention?

Customer retention, as the name suggests, is when you retain an existing customer. In the world of marketing, it’s also known as a process of engaging existing customers to purchase more from your brand. The whole process is inclusive of certain customer-centric and engaging strategies that influence customers to repeat purchases from your brand and become loyal to your brand over time.

In the simplest form, customer retention is a metric to measure the percentage of customers you retained over some time and it helps you understand customer satisfaction with the product or service that you provided, their re-purchase behavior, and their bond with the brand.

While you might believe it should be simple to keep a customer who has already placed their confidence in you and made a purchase. However, the stats show otherwise. In a research conducted by Semrush in 2021, It was found that only 18% of businesses focus on customer retention although the ground rule of any business is to build a strong base of loyal customers that feed the company and stay long-term. Here is a small exercise for you, confirm if your business focuses on customer retention. To do so, start by measuring the current customer retention rate of your business. If you are not sure of the formula, refer to the next section to know how you can calculate the same.

How is Customer Retention Rate Calculated?

The formula for calculating customer retention is as follows:

[No. of customers at the end of a period - No. of customers acquired during that period / No. of clients at the start of the period] x 100

For example:

Let’s suppose we have 20 customers at the start of the year. We gained five new customers in the second quarter, and we lost one customer at the end. So the retention rate will be calculated as

[ (24-5) / 20 ] x 100

= 95%

Therefore, our customer retention rate comes out to be 95%.

Importance of Customer Retention - Why Focus on it?

Brand loyalty isn't something you can acquire quickly. Customer retention is a crucial step in developing brand loyalty. Customer retention has other advantages besides just increasing your revenue and fostering brand loyalty over time. And I'm sure you're aware of some of them, but I've included some important benefits of focusing on customer retention below so that when you develop your customer retention strategy, you can measure its effectiveness holistically.  

  • Helps with Lowering Marketing Costs

    Your marketing cost can decrease considerably if you prioritize existing clients in the lead retention stage of a customer journey. Existing buyers are already familiar with your service and products. So marketing campaigns targeting them will be less expensive than those for new leads.

According to the GCG, advertising to new clients costs around $34/lead, whereas it’s just $7 for existing customers. 
  • Helps Maintain Consistent Sales

    Loyal customers who are regular with their purchases tend to spend 33% more during their shopping, resulting in increased long-term customer value. Moreover, there are also 50% more chances for them to try new products because of mutual brand-customer trust.

  • Helps with Word-of-Mouth Advertising

    You might have already heard this from many people, but let’s repeat it one more time. “Word-of-mouth is one of the best and most cost-effective types of advertising. Repetitive customers are likelier to share their views or positive experiences with others, becoming free business advertisers.

Before we continue, I'd like to clarify something: knowing about customer retention and its benefits will not help you retain more customers; it was discussed simply to draw your attention to it. And there's a good possibility you're already paying attention to it. However, if you are having difficulty retaining the majority of your customers and generating brand loyalty in them, as Apple, Microsoft, or Tata can, then the following part will be a game changer for you.

What influences a customer to repurchase and eventually become loyal to the brand?

While in general it is believed that customer retention relates to the overall spending power of the customer and if you offer a certain price advantage compared to competitors during repurchase, you can retain the customer. And that is why it is generally observed that the first thing that most companies do to retain existing customers is to offer monetary benefit. However, like any buying decision, repurchase decisions are not just influenced by economic factors but multiple other factors as well. Like:

  1. Customer-perceived value plays a critical role in repurchase decisions. To decide whether to repurchase from the same brand or another brand, customers do an overall assessment of the utility and benefits of the product or service based on perceptions of what is received and what was given. The benefits can be in form of service quality, accessibility, ease of use, overall experience, or a series of psychological benefits like emotional connect, engagements, etc. And that is the reason why loyal customers don’t go to a less expensive brand even when offered price benefits, as the perceived value of the product or service is higher compared to the price benefit offered by competitors.

  2. Brand reputation psychologically creates a sense of dependability, comfort, and trust in the minds of consumers and influences them to continue buying from them. This is something that I have personally observed. My friend uses iPhone but he is not so technologically enthusiastic or concerned about the security of data and all. However, he continues to buy iPhones only and doesn’t even consider other brands while making repurchase decisions.

  3. Changes in requirements can push customers to switch to another brand. If the customer's needs have changed and they need a little more advanced product, or there are certain use cases that your products are not able to meet, then most likely they will not even consider your product while making the repurchase decision. However, if the brand continues to upgrade and reinvent itself with changing requirements of its customers, then this helps in developing trust and a positive attitude toward the brand that aids in developing brand loyalty eventually.

  4. Social factors, getting influenced to try new products available by people in his network can also influence a customer to change to a competitor. And that is why successful brands regularly engage with customers, update them about upcoming products, and share success stories. Any type of online content, whether it’s in the form of a blog or social media posts, website content, or email newsletters, has the potential to encourage loyalty to a brand.

Having understood the major factors that influence customers to stick to the same brand and eventually become loyal customers, let’s explore certain practices with a strategy around the above-mentioned factors, that we can adopt to develop a loyal base of customers.

Strategies to build a loyal customer base

To begin with, to develop a loyal customer base, a business must become truly customer-centric. Customer-centric means concentrating on delivering excellent customer experience across all touchpoints before and after sales by developing strategies, establishing processes, and training teams. And, sure, this cannot be accomplished in a single day, month, or year; therefore, begin by setting a series of SMART small goals that lead to the big goal of a certain share of loyal customers in the industry.

To keep things simple, effective, and actionable, you can refer to the framework shared below. This is the framework that we brought into practice after our thorough research of successful brands and it has helped us retain more than 90% of our customers month-month and around 75-80% year-on-year.

  1. Understanding customers'

Knowledge of customers is the key to giving a good service. Understanding customers does not only mean knowing their names, ages, locations, and income but knowing and understanding them as you know and understand yourself includes knowing the following W’s about them:

  • What interests them?
  • What motivates them?
  • What are their needs?
  • What are their challenges?
  • What are their goals?
  • What tone and language they are more comfortable with?
  • What platforms do they use?
  • What mode and channel of communication they are more comfortable with?
  • What is the best time to engage with them?
  • What do they feel about your product or service?
  • What is the level of connection they have with you?

Thankfully we are a CRM software provider, and on recognizing the above requirement, we created RevOps-enabled, AI-driven automated CRM that could easily help with this. The solution not only helped us in creating a centralized system that keeps all revenue operation teams including Sales, Marketing, Customer Support, and Customer Success integrated and aligned but also help us with insights on the above on the go.

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  1. Designing experience across touchpoints

On a macro level, you can start by making your products and services easily accessible, easy to use, and easy for your customers to reach you in case of any query.

However do remember, people don’t just buy the product, they buy the experience. Once the experience doesn’t live up to their expectations, they switch. And trust me they are even willing to pay higher for a better experience. Hence in today’s intensely competitive world, we can’t retain customers for long, just by focusing on macro-level experiences. We need to make sure customer experience is enhanced at every touch point and for that, it is important to map out each touch point with the customer expectation based on the data points collected in the above step. To achieve this, start by identifying every touch point possible across channels, both online as well as offline, and set up SOPs and guidelines for your team to be followed across each touch point. It could be as simple as, how to respond to positive/negative feedback or reviews on social media channels or how to introduce yourself to customers, or how to onboard them.

  1. Empower and train the front-line employees

You can collect data, and define SOPs, but it is your employees who will finally engage with your customers. Hence you need to either hire people who align with your customer-centric culture or train them to be so. You need to connect the organizational culture of customer-centric to the outcomes so that they are motivated and empowered to delight customers on their own. Also, you need to further train them on interpersonal skills, leadership skills, and communication skills, so that they deliver exceptional service with ease. You can even partner with elearning production companies to help you create engaging and interactive video training modules tailored to different learning styles.

  1. Regular feedback

Being customer-centric is also about anticipating the changing needs of customers. No matter how great your product or service is, the customer may not feel the same, or he may find something difficult in using your product or service, or it could happen that it could not align with his changing needs. And hence, you need to set up the process of regular feedback on the product or the quality of service. This not only helps you gauge how you are progressing as a customer-centric organization but also helps you gain knowledge to further improve your product or service.

  1. Regular engagement with clearly defined objectives

Connecting and engaging with your customer over the phone, in person, and actively over social media platforms helps in developing emotional connections. It’s about forming a strong relationship with them. Wishing them over festivals, and sharing product updates and offers though important is not sufficient to form strong relationships. You need to give your customers reasons to keep connecting and engaging with your business almost every day for strong relations. You can start with increasing usage of your product or service by creating day-to-day value of using your products or service or by making the products, services, offers, etc. part of the customer’s daily workflow. You can use some of the below ways to keep customers engaged:

  • Build a community or groups on social media
  • Create content around things that matter to them, both on the blog, webinar, videos, infographics, etc.
  • Create energy by hosting contests, sharing about yourself, and asking questions
  • Organize events and invite them to the same.
  • Involve them in whatever way possible like the product-making process, co-creating content, etc.
  1. Build Brand Reputation Online and Offline

Word of mouth has always been one of the major driving forces in any purchase decision. People value experiences and put more trust in what is communicated by its users than what is communicated by the brand. However, the digital age magnified the whole information sharing, now people not only interact and get persuaded by their friends and family's feedback/recommendations but also from the reviews and feedback shared online. In today's digital era, brands need to be, faster in tracking and responding to any issues especially if it arises online. This is easier said than done as the number of touch points is increasing drastically with the rise in media and media partners. And that is one of the primaries that business today needs to enable RevOps and use an integrated CRM like AI [CRM], which breaks silos between teams, keep all of them aligned, and makes customer relationship management effortless. Apart from that business has to hold on to the basics -

  • Deliver what you promise
  • Be authentic
  • When the mistake is on your part, take the blame and if it is not, stand for it.
  • Let Time play the healing.
  • Share success stories and call brand advocates when required.
  1. Market Research

All said and done, in today’s intense competitive era with changing consumer demands, brands need to keep themselves well aware of new tools, upcoming technologies, and changing needs of consumers and keep themselves upgrading accordingly. Don’t forget Nokia did all these and was the leader in the phone industry, however, lost its market share in no time.