Customer Retention: Why it’s Important to Make Your Current Customers Happy

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Customer service is such an important part of business and plays a huge role in the success of companies. However, more and more these days it seems that companies are ignoring this fact, or at least putting customer service on the back burner instead of making it a priority throughout all aspects of the company. If every employee of a company had providing excellent customer service down as their primary goal, many customer service disasters would be avoided. Companies who have strong roots in customer service have been much more successful than those who have not made providing an excellent customer experience a priority. Companies with a less than stellar record for pleasing their customers suffer not only with a bad word of mouth reputation, but also with problems in social media. More than that, companies actually spend more on acquiring customers than they do retaining customers when it should be the other way around.

Customer Frustration
How many times has a company offered you a better deal to stay after you told them that you wanted to terminate your service? This is a common practice with monthly service providers like cable companies, mobile phone providers, satellite radio, and more. How frustrating is it to hear that you can pay less than half the price you were paying when you call to cancel your service? At that point, who wants to stay with the provider and pay less? This is a common customer retention tactic. However, if companies wish to keep a customer and keep them happy, offering the best price to the best customers is the best practice.

Lifetime Value of a Customer
Calculating the Customer Lifetime Value (CLTV)of your customers is the first step to evaluating and showing the return on the investment into customer retention through good customer service practices. One of the main realizations for companies to come to is that customer service and customer retention is ultimately a marketing expense. CMO.com explains, “Organizing marketing to improve the performance of three key ingredients – lowering acquisition costs, raising total margins, and reducing the churn rate – can be an even more powerful application of CLTV for CMOs.” The cost of customer acquisition versus customer retention could reach as high as 700%, according to a report by Frederick Reichheld of Bain & Company as below:
o Acquiring a new customer can cost 6 to 7 times more than retaining an existing customer
o Over a 5 year period customer attrition rates could reach as high as 50% if databases are left dormant
o Businesses which boosted customer retention rates by as little as 5% saw increases in their profits ranging from 5% to a whopping 95%.

Time for a Change
Many of the mobile phone providers have been making headlines lately because they are changing the way their contracts work and appealing to customers by rewarding loyalty. No doubt, the statistics above have shown to be true for their industry. In the past, new mobile customers were given benefits like free or discounted phones and a reduced price on service for an introductory period of time. While loyal existing customers who had been with a provider for many years and was known for paying their bill on time each month were not given the same offers, and had to pay full price.

Tips for Turning the Tide and Embracing Customer Service:
1. The sale is not the end. Do not stop paying attention to your customer once the sale has “closed”. In fact, it is not a close, but the beginning of your relationship with them
2. Focus on customer service and retention at all stages of the relationship with a customer. Focusing on trying to make a customer happy when they are leaving does not lead to customer satisfaction.
3. Learn what your customers want. Understand your customers and their motive for purchasing from you instead of your competition.
4. Communicate with your customers. Continually send offers to your customers and connect with them during all stages of the relationship.
5. Use the 80/20 Rule. The Pareto Principle translates into a common rule of thumb for many of areas of business, including customers. It means that 80% of your sales will come from 20% of your customers. Focusing your marketing and customer service efforts on that 20% of your top customers will result in more sales with a greater level of efficiency.

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