According to Gartner Group, 80% of your company’s future revenue will come from just 20% of your existing customers. Yet the focus tends to be on acquiring new customers, simply for the reason that looks better on paper.
Positive numbers for new customers is always a fun thing to see on your desk. Yet there’s also real excitement and opportunity in focusing on retaining your existing customers. When building a loyal base of customers, you should also implement customer retention strategies.
Why Should You Engage in Customer Retention?
While it’s a fact acquiring new customers is far more costly than retaining new ones, customer retention tends to slip to the side of many companies’ attention. Part of the reason is it’s harder to measure customer retention. You can calculate return on investment for acquisitions by simply comparing the amount spent on marketing against the number of new purchasing customers. Customer retention takes more time and details. It analyzes the long-term value of a customer by using past purchase behavior instead of focusing on the result of a single transaction.
Since customer retention requires greater in-depth study into the consumer spending habits than typical acquisition marketing, retention strategies thus require greater personalization on the customer’s end. The ability to accurately analyze data and then implement targeted offers and ads based on consumer behavior is what successful companies will need in order to successfully retain customers. One great example is Target, who used their historical transaction data and their knowledge of consumer shopping trends to make targeted coupon and sales ads to newly expecting mothers.
Loyalty and Retention?
So how does loyalty and customer retention fit together? Are they the same thing?
Not quite. Loyalty programs serve to build and reward consumer habits. Properly designed loyalty programs recognize when a consumer demonstrates the right behavior desired by the company. The program then rewards the consumer for that behavior. Loyalty programs also provide the ability for the customer to engage with the brand beyond transactional.
Customer retention is centered on educating the customer about the value of the company and the services provided. It’s focused on the potential lifetime value of the customer by making the benefits of the company available – like faster shipping, better prices, targeted offers.
Put another way, measuring customer retention will tell you the frequency in which a customer shops with you. Measuring loyalty will tell you how predisposed a customer is to shop from you.
As such, customer retention strategies can help build loyalty within customers and loyalty programs provide a good method for investing in customer retention. This is why you should make customer retention on of your main loyalty program goals. Think about it this way. You can build a loyalty program to acquire new customers, but you will not see any reliable growth or successful utilization if old customers are departing as fast as new ones are signing on. True loyalty is built through creating long-term consumer engagement, not one-time transactions.