The Importance of Customer Retention
Your best new customer may be your best old customer. Far too often, though, companies don’t give customer retention the importance it deserves. Business development is often viewed as important, while account management is boring.
It’s really not surprising. The best sales people are hunters. Of course they’re motivated by money, but they also live for the thrill of the chase, the satisfaction that comes from finally closing the deal. Holding on to an existing customer just doesn’t compare, so they focus instead on new business. But that’s a mistake.
There’s also a natural tendency to view new business as an increase over the baseline, while recurring orders from existing customers are baked in to that baseline. But numerous studies have shown conclusively that existing business is more profitable.
The economics is compelling. So much time and effort goes into getting a new customer. Once you have that customer, the effort finally starts to pay off. If you lose that customer, you’re back to square one and have to start all over again. But the benefit of a strong focus on customer retention goes beyond that. It can make your whole business better.
Customers are looking for value. Price can be part of that equation, but trying to compete solely on having the lowest price is rarely a winning long-term strategy. Where you can add value, and be paid for the effort, is in the area of customer experience. To stand out, a company needs to create a customer-centric experience, leveraging data to focus on what’s important to that unique customer.
The good news is that technology offers the ability to do this in ways which were not possible before. The key is to focus on each customer, and what’s important to that customer, rather than just having a generic, one-size-fits-all customer loyalty program. The longer you can hold on to a customer, the more data you accumulate on that customer’s preferences, and the better you can anticipate and meet his or her needs.
But technology also gives your customers access to information on competitive offerings in ways they never had before, and makes it extremely easy for them to switch to a competitor. You need to give them a reason to want to stay with you. To do that you need to make the decision to emphasize retention and signal to your entire organization that keeping existing customers happy, and holding on to their business, is important.
Customer retention is emerging as a key competitive advantage. Here’s the question: Will it be an advantage for you, or for your competitors?