Customer retention strategies, such as personalized marketing campaigns, effective customer communication, innovative products, impeccable services and loyalty rewards, are beneficial to forging strong customer relationships. These measures, when implemented, help companies see an increase in their profitability.
Here are the top reasons why customer retention is essential to businesses.
1. Repeat Purchases
According to Frederick Reichheld, the creator of the Net Promoter System of Management, “a 5 percent increase in customer retention produces more than a 25 percent increase in profit.” That is because loyal customers make repeat purchases and sometimes in larger quantities. They may also try new products or services offered by a company.
To illustrate, Netflix has a customer retention rate of 83 percent after one month and 72 percent after six months. With more than 214 million subscribers, the company generates a steady income from over 154 million subscribers. Essentially, the higher their customer retention rate, the more revenue they generate.
2. Reduced Costs
It costs less to keep existing customers than to get new customers.
Source: struto.io
Within the business community, some believe that customer acquisition costs five times more than customer retention. In other estimates, it could cost six to seven times more. While not quantifiable, these figures indicate that keeping customers help reduce marketing costs.
Source: superoffice.com
The success rate of selling to new customers is only 5 to 20 percent. For this reason, companies spend a significant portion of their marketing budget on enhancing brand awareness and advertising products or services. However, existing customers are not the same. For one thing, they already know and have used the product or service. As such, there is no need to spend as much as acquiring them.
3. Increased Brand Loyalty
Few consumers love a brand the first time they engage and have a great experience. Instead, 80 percent of them grew to love a brand over time due to a variety of reasons, such as
• Great products
• Excellent buying experience
• Superb customer service
• Positive customer feedback and reviews
Around six out of 10 loyal customers would go out of their way to buy products from a brand they love. As repeat customers, they tend to buy more products than they did the first time.
The value of retaining customers also does not stop with their repeat purchases. They also become brand ambassadors, telling other people about their positive experiences, which help their favorite brands get new customers without entailing marketing costs.
Loyal customers are excellent sources of information. Companies, for instance, can make necessary changes through customer feedback to further improve their products and services.