Customer acquisition is an effective way to build sales, but it’s also costly. It’s more cost-efficient (and sustainable) to invest in customer retention, ensuring the customers you do have keep coming back. One Harvard study estimates that just a 5 percent increase in customer retention can lead to an increase in profits between 25 and 95 percent – a whopping return on investment (ROI) that many customer acquisition strategies can’t compete with.
On top of that, customer retention strategies tend to cost less than their acquisition-based counterparts. But what are these strategies, and how can they lead to a bigger, more profitable business?
Barriers to Customer Retention
First, if customer retention is so much more cost-effective, and better for your business long-term, why are only 18 percent of companies focusing on retention?
There are a handful of barriers to entry that prevent most retail companies from following through on their retention strategies:
- Focus on immediate results. Most retail stores are focused on turning inventory and creating as much sales growth as possible, as quickly as possible, and investments in customer acquisition tend to see faster, more immediately measurable results – even though retention investments tend to have better returns over the long term.
- Failures in calculating lifetime customer value (LCV). It’s also notoriously difficult to accurately calculate the lifetime customer value of a given customer. This, in turn, makes it difficult to measure the “true” ROI of a customer retention strategy, and certainty is preferable to ambiguity.
- Lack of insight or understanding. Finally, many retail store owners struggle to execute an effective retention strategy simply because they aren’t sure what to do. There are many options, and no clear superior strategy, so they end up focusing on what they know – acquisition.
How to Improve Customer Retention
So, what are some easy ways retail companies can improve customer retention, without running into any of the aforementioned obstacles?
- Use consistent branding at all times. First, you need to make sure your branding is consistent and visible everywhere a customer would interact with you. You should have the right signage in front of your business, the right imagery and music playing inside the store, and even the right typeface on the signage and packaging of your main products. You’re trying to create a memorable and unique experience for your customers, but to do that your brand needs to be both present and obvious. Any deviation here could compromise your chances of success.
- Set up a rewards or loyalty program. Next, make sure to set up a customer loyalty program, or some kind of reward system that encourages customers to keep coming back. These can range from complex, like a “point” system that keeps track of visits and purchases, to simple, like a punch card that gives you a free item after a specific number of purchases. Any system you have in place is enough to encourage more customers coming back – so don’t be afraid to invest in it.
- Surprise customers with extras. Nothing makes a customer experience more memorable than a pleasant surprise at the end of a shopping journey. Surprise your customers with bonuses and extras when you can, whether it’s a bonus gift in your shipments or a surprise discount when customers get to the register. Highlight the experience by telling customers the value you’re giving them – even if they don’t come back, they’ll be likely to talk about the experience with others.
- Give a consistent experience with every interaction. Just as you need to keep your brand imagery and voice consistent throughout your physical location, you need to take measures to ensure that every customer experience or interaction with your staff is similarly consistent. One staff member’s bad day, or one display’s disorganization, could be enough to take away from a customer’s experience or give them mixed feelings about your brand that pushes them to one of your competitors.
- Give customers a reason to come back. Finally, make sure your customers have a good reason to come back to your store. Your customer loyalty program is a good first step in this direction, but you’ll also need to add more interesting features, sales, and promotions to keep an inbound flow of people – and to keep things interesting for even your most loyal customers.
Customer retention doesn’t have to be complicated; even a handful of simple changes can boost the likelihood of a customer returning to your store in the near future. However, you need to be familiar with your audience, consistent in your efforts, and focused on making the right investments if you want to make it work. If you can pull off a successful customer retention strategy, and layer in a sufficient acquisition strategy on top of it, you’ll have a self-sustaining system that cranks out revenue and keeps your business running for years.
- In the Midst of Transformation, a Time to Rethink Retail Blog
- The Right Product at the Right Place at the Right Time: Differentiating the Shopper Experience through IoT & Supply Chain Management Blog
- Key Takeaways from the WWD Apparel & Retail CEO Summit Blog
- Retail’s Far from Dead – But, It Is Changing [INFOGRAPHIC] Blog