If you ask a room full of executives what the secret is to improving customer retention and loyalty is, you will probably get a mix bag of answers. But, place executives from companies like Zappos, Trader Joes, Starbucks and Disney in a room and ask them the same question, and you’ll start to hear answers that revolve around investing in employees and in the customer experience.
At Aveus, we’ve helped companies achieve improvements in customer retention and loyalty for over 15+ years. We’ve identified the pattern, or the same “ingredients,” present for each of our clients when they achieve desired retention and loyalty measurements.
Improve retention and loyalty by keeping enough of the right customers. This means you need to understand two things:
- Be keenly focused on the right customer for you.
- Efficiently provide value to them.
Let’s explore why retention and loyalty are important, what poor retention and loyalty looks like within an organization and dive into each component of our secret sauce so when you’ve finished reading, you’ll have a more effective way to identify and fix your retention and loyalty problems with a sense of urgency.
The universe of customers is not infinite – especially in B2B organizations. Most organizations have a finite pool of potential customers, where losing a customer means your target audience shrinks just a little bit. When compounded over time, you could lose your entire target audience or significantly damage any financial performance goals.
Here’s an example: At Aveus we sell management consulting services to “Bold Leaders”. That’s a tight niche. There are only so many executives who we would consider “Bold Leaders”, therefore our potential market is finite. This means that each customer is precious, and having an experience that properly satisfies our customers’ current needs while addressing their future needs, is paramount.
Customer retention and loyalty are important because they make achieving growth and financial performance goals easier.
You have a problem if your net growth in customers is low. If customers are leaving as quickly as you are acquiring them, you’re only getting a portion of their lifetime value. Let’s say your customers are growing annually by 10%, however only 3% of them are still there after 12 months (which is less than your average lifetime value). If these numbers sound familiar, you’re experiencing a retention and loyalty problem.
You have a problem if your marketing and sales costs have increased every year recently, or they’re simply too high. (Period.) It’s typically cheaper (and easier) to keep a customer than it is to find a new one. As your churn rate increases, so do your marketing costs to replace the customers you’ve lost. You may be spending more to keep customers from defecting. In other words, marketing and sales become a “tax” for your inability to provide value.
You need to pinpoint the ideal customer within your target market. Our experience has shown us that most know their target market, many can pick out their ideal customer within that target market. But few are focusing their daily decisions across the company solely on that ideal customer.
In this mistake lies an opportunity. Start to focus your marketing, product and service design, and fulfillment efforts solely on the specific, ideal customer. By designing and executing your business for those who are most likely to drive your growth and profitability, you will be most attractive choice for them. And you’ll capture those who aspire to be like your target customers or are most like them. Those who are most different from your target customers will self-select away from your organization.
This can be difficult for some leaders to swallow, because focusing on target customers can seem as if you’re leaving money on the table. “Everyone is a good customer, I don’t want to lose the opportunity to serve any of them.” I hear this most often in regulated or geography-based businesses like hospitals or single location retail stores.
But the truth is, investing time and money on non-ideal customers within your target market can actually cost you money. Why? Because a non-target customer is more likely to consume resources at the customer service and managerial levels, which is to the detriment of loyalty, retention rates and more. Actually, we call these “profit leaks”, and stopping those leaks is a path to profitability.
Look for moments in the customer experience that carry disproportionate weight in influencing your customer’s perception of success for the overall experience. We call them Tipping Points. There are a handful of these moments in any customer experience. Where are they in yours? Your customers’ perceptions during these Tipping Points can dictate their overall experience.
Tipping Point moments are significant for three reasons:
- They can move the customer fastest and furthest towards having their need solved.
- They create a high level of emotional engagement with the customer
- The disproportionately positive or negative perceptions that occur at a Tipping Point moment create a positive or negative halo effect on a customer’s perception of the entire experience.
Brilliant companies know where their Tipping Points are and are intentional in how they design these moments accordingly. But thinking of where yours lie can sometimes be difficult. In our experience there are two places where Tipping Points often occur:
- The moment when your customer uses your product or service to solve their problem or fulfill their need
- ex: taking the first sip of a cold beverage after running on a hot day
- Their feelings as to whether you have proved your promise
- ex: either feeling hydrated and satisfied after that sip, or feeling more thirsty and unsatisfied
Take Zappos, for example. One Tipping Point in their process is the moment before I hit “buy” and I hesitate, worried about the hassle of returning shoes that don’t fit well. After picking your perfect pair of running shoes, the last thing you want is wait a week for them to arrive and be let down.
So what has Zappos done? They have made it part of their customer experience strategy to upgrade customers to free overnight shipping, and free return shipping. They’ve designed the moment to give me confidence I won’t have a hassle if they aren’t right, that Zappos will stick with me until I’m happy – and by surprising first time customers with free overnight shipping, they’ve virtually designed out the possibility of buyer’s remorse before my shoes arrive. This moment is both highly effective, and generates a load of positive emotional engagement.
Here’s another example: Up until around 2012, a significant amount of people had a negative impression of Delta. Only a few years ago, the company was known as a poor performer across different customer satisfaction areas, and even made it on a list of the most hated companies in America.
But with a concerted effort to improve, Delta turned things around and today public sentiment towards the company has vastly improved.
So what changed at Delta that led to the improvement?
They started investing in new technology to improve their processes; they hired new mechanics to ensure their fleet was running more smoothly; and they retrained employees, sending 11000 agents to charm school.
Delta found Tipping Point moments in specific interactions customers had with their agents,, and they became intentional about improving the experience at those pivotal moments. The result was that more people had pleasant interactions with Delta staff at key moments, which helped to improve their overall perception of their experience with Delta.
In conclusion, the secret sauce for improving customer retention and loyalty involves knowing who your most profitable customers are and paying attention to the moments in the customer’s experience that have the biggest impact.
Know and do these things well, and you’ll be rewarded by customers that happily and continuously rely your brand to fulfill their needs.