What is customer retention?

Customer Retention is all about keeping existing customers from going elsewhere. How well or badly you keep your existing customers is your customer retention.

In today’s fiercely competitive marketplace, businesses strive not only to attract new customers but also to keep existing ones “coming back for more.”

Your marketing strategy should include both customer acquisition and customer retention. Customer acquisition involves attracting and converting new customers to start purchasing a company’s products or services.

Customer retention is fundamental for building a loyal customer base. Engaging with customers through personalized experiences, rewards programs, and consistent quality service can significantly boost retention rates.

IBM, an American multinational technology company, says the following about the term:

“Customer retention refers to an organization’s ability to keep customers buying their products and from switching to other providers. It is increasingly important in a world where consumers are more likely to switch products than ever before. Organizations that succeed at customer retention will benefit by encouraging customer loyalty.”

Customer retention and long-term success

Being able to hold onto your existing customers is vital for the long-term success and the sustainable growth of your company.

Many of the world’s largest corporations would not be where they are today if they had not focused so strongly on customer retention.

  • Examples

Apple Inc. is a well-known example of a company that has built a strong brand and loyal customer base, leading to its status as a multinational giant. Their success is in part due to high rates of customer satisfaction and repeat business, which are key indicators of effective customer retention.

Here are eight additional companies from around the globe that have excelled in retaining their customers, each using unique strategies to encourage repeat business and loyalty:

  • Amazon (United States)
    Prime membership offers compelling reasons for customers to choose Amazon time and again.
  • Toyota (Japan)
    Reliability and quality keep Toyota owners loyal, often choosing the brand for their next vehicle.
  • Starbucks (United States)
    The rewards program incentivizes coffee lovers to make Starbucks their regular stop.
  • IKEA (Sweden)
    Affordable, design-centric products keep IKEA customers returning for more home furnishing needs.
  • Netflix (United States)
    Personalized content keeps viewers subscribed and continuously watching.
  • John Lewis & Partners (United Kingdom)
    Iconic retailer renowned for exceptional customer service and quality, ensuring high customer loyalty.
  • Costco (United States)
    Membership benefits and bulk savings ensure a high renewal rate.
  • Samsung (South Korea)
    Innovative electronics and quality customer service maintain Samsung’s consumer base.
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Image created by Market Business News.

Costs of retaining existing customers

Understanding the importance of holding onto your current customers is crucial for any business. It costs much less to retain an existing customer than to acquire a new one.

In an article published by Harvard Business Review, Amy Gallo wrote the following:

“Depending on which study you believe, and what industry you’re in, acquiring a new customer is anywhere from five to 25 times more expensive than retaining an existing one. It makes sense: you don’t have to spend time and resources going out and finding a new client — you just have to keep the one you have happy.”

Maintaining customer satisfaction not only reduces costs but also increases the chance of upselling and cross-selling as trust is already established. The terms “upselling” and “cross-selling” refer to the practices of selling a higher-end product than the one in question and offering related products or services, respectively. These sales techniques capitalize on established customer relationships to enhance revenue.

Satisfied or loyal customers are more likely to become brand advocates, recommending your products or services to friends, colleagues, and family. This organic promotion is priceless and comes at no extra cost for the seller.

Strategies to improve customer retention

There are several strategies you should adopt if you want to improve customer retention. Let’s have a look at some of them:

  • Customer service

Providing exceptional customer service is crucial to build up loyalty. If a consumer feels valued and satisfied with the service they receive, they are much more likely to return.

Top-quality customer service includes everything from friendly, helpful, knowledgeable staff to efficient problem-solving processes.

  • Personalization

Personalization is the customization of products, services, and content to meet the specific needs and preferences of individual customers or segments.

By understanding and addressing customers’ individual needs and preferences, companies can create a more personalized experience, which helps foster loyalty.

This may involve tailored product recommendations, personalized marketing messages, adaptive website interfaces, targeted discounts, and customized communication such as using a customer’s name in emails, or even simple acknowledgments of important customer milestones.

  • Loyalty programs

Loyalty programs are structured marketing strategies designed to encourage customers to continue to shop at or use the services of a business. They are a popular method for enhancing customer retention.

By rewarding people for their repeated business, you can encourage them to keep coming back.

Examples of rewards include discounts, special offers, exclusive access to new products or services, points redeemable for goods, early-bird notifications, members-only events, complimentary upgrades, and personalized gifts.

  • Communication

Keeping in touch with customers through regular updates, newsletters, or feedback surveys helps maintain a connection. Customers feel informed and engaged with the brand.

  • Quality

Quality is paramount. You will not retain customers if you cannot deliver high-quality products or services consistently. The best marketing campaign or customer service in the world is worthless if you cannot deliver top quality.

Your core offering must meet or exceed customer expectations.

Famous quotes

These quotes come from some of the world’s most successful business people. They all have something in common – their understanding of the importance of customers for business success.

  • Walt Disney, the pioneer of the American animation industry and founder of Disneyland, once said:
    “Do what you do so well that they will want to see it again and bring their friends.”
  • Richard Branson, the founder of the Virgin Group, which controls more than 400 companies, advised:
    “The key is to set realistic customer expectations, and then not to just meet them, but to exceed them — preferably in unexpected and helpful ways.”
  • Bill Gates, co-founder of Microsoft Corporation and one of the pioneers of the personal computer revolution, observed:
    “Your most unhappy customers are your greatest source of learning.”
  • Jeff Bezos, founder of Amazon and a key figure in the growth of e-commerce, believes:
    “We see our customers as invited guests to a party, and we are the hosts. It’s our job every day to make every important aspect of the customer experience a little bit better.”

Final thoughts

Customer retention is about building lasting relationships with your customers. It is a multi-pronged approach that requires attention to customer service, loyalty incentives, personalization, communication, and product/service quality.

If you manage to build up customer loyalty, they are more likely to become long-term advocates for your brand.

A focus on customer retention can lead to a stronger and more resilient business that is capable of sustained growth and success.