The Importance of Customer Retention — An Empirical Study

importance of cutomer retention

Every customer counts. But some customers have a far greater impact on your business than others. To get the most out of your customer base, you need to understand which customers are worth more to you and take action to keep them. It’s important to have a well-defined customer retention strategy. In this article, we focus on Customer Retention and the importance of customer retention in other words, how to keep the Customer engaged with you and your brand.

What is customer retention?

All activities that an organization undertakes or customer-centric practices that a company implements intending to engage the Customer and his loyalty towards your offering and or brand come together to form what we call Customer Retention. The intention is to get the customer back to your organization/store/brand next time they are looking for the same offering.

Customer retention strategies help you retain customers that you have strived hard to acquire and maximize the revenue earned from the existing customer base. Try improving customer experience and continue to gain value from your products. In short, the acquisition creates a foundation of customers, whereas retention strategy helps a business build customer relationships and maximize revenue for each one increasing the lifetime value. The challenge is arriving at, the right time and resources, to devote to this initiative.

What should be the retention program? The answer to that lies in your business and the wares you sell.

When to focus on customer retention?

Whether the business focus should be on customer acquisition or retention depends on the stage of the business lifecycle. Customer acquisition will take up all the energy if it’s the early days of the offering or a start-up. It is advisable to incorporate retention practices early on. They help customer retention and build word-of-mouth publicity bringing in new customers. Having said that, the retention policy will differ significantly for a new enterprise and an enterprise that has been in business for a while. Look at the timeline below for general guidance on the business’s potential investment levels.

Why Customer Retention? 

Findings from studies conducted reveal:

  •  acquiring a new customer is 5-6 times more expensive than retaining an existing one
  • A repeat customer is likely to buy more than a new customer
  • 68 % of customers leave on account of perceived indifference!
  • Your product line will define what your retention initiative would look like. It will be different for perishable items, differently structured for FMCG, and very different for high-value products.
  • Products that offer a higher customer lifetime value (CLV) need to have a retention policy that is more engaging and involving. Here the post-sales service becomes a definer.

So, what are the steps you need to take to make your customers come back to you time and again?

Here are the 4 basic steps to lay the foundation for the journey we call Customer Retention:

Step 1: Organization and its Value Set.

The organization’s value set defines its customer-centricity. Create a culture of “Customer first”. It is on the shoulders of the leadership to lead the way and demonstrate that it is not just a value on paper but is reflected in every action and decision that the organization makes. Make your customer feel cared for at every touchpoint.

To achieve this, the organization needs to invest in its employees. Take care of them, train them right, engage every person in the organization to help them understand the customer orientation approach of the company. Remember, the customer journey does not start with the sale but when the Customer first connects with your organization, whether for exploration or purchase.

Post-sales, train the staff in handling customers. Incorporate customer-centric practices and empower the ground staff to make decisions when the situation calls for it. Ongoing training needs to be imparted to staff to continue to build their emotional intelligence on the Customer’s needs.

It is imperative to understand the Customer and his needs-expressed and latent and explore how one can add value, communicate it to give them a reason to come back. Anticipating their needs and acting on them will cause your customers to come back, again & again.

Step 2: Create value. Research reveals that a customer will choose a product from a company with a higher customer orientation than a better product with lower customer service. The key here is managing the Customer’s perception of the organization, its Products, and Services. The higher value perception translates to confidence in your product and service, which results in lesser price objection and increased advocacy.

Step 3: Communication. Customer communication is a secret ingredient that keeps them engaged with the brand and its value. Connect with the Customer emotionally, so that they take on the ownership of the brand. To achieve this end, one should employ customized communication, may it be through newsletters, emailers, social media, etc.

Step 4: Loyalty programs that add value. While very effective a tool, its success hinges on how well it fits your customer. It needs to engage the Customer and deliver tangible value.

All these steps need to come together to create the perfect strategy for Customer retention.

Remember, it is not a plug-n-play model. It will need constant nourishment. Measure, fine-tune & improvise.

Some metrics to keep in mind are:

  • Repeat Customers: The number of customers returning to purchase with you is the same product or a complementary one against the number of unique customers. The number of customers who bought more than once, is divided by the number of unique customers.
  • Frequency of Purchase: How frequently does a customer buy from you. Several orders divided by the number of unique customers will give you this number.
  • Average Ticket Value: This tells you the average value of a customer’s purchase with you. The total sales value/number of invoices will give you the number.

To truly understand if your retention efforts are bearing fruit, you need to see the customer value of your offering. Customer Value is nothing, but Frequency of purchase multiplied by Average ticket value.

A good Customer retention policy is a living document. People change so do their needs. Make sure your customer retention policy takes that into account s your product and service line-up does.

Now that you know my secret sauce for customer retention and how to measure its impact share your feedback or share if you like it.


Please enter your comment!
Please enter your name here