What is the most effective marketing strategy to increase customer retention?

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It often takes five to 20 times the amount of resources for businesses to obtain a new customer than to retain an existing one. Despite this, customer retention often gets ignored in favor of plans geared solely towards brand-new shoppers. While casting a wide net works well for fishing, one-time clients will not keep a company from treading water. With that in mind, this article shares 14 must-know customer retention strategies that will work in 2022.

What Is Customer Retention?

Customer retention refers to customers who deliberately pay for your products or services more than once over a period of time. A single loyal customer making several purchases over a year is ultimately more influential than several shoppers that buy once and never again. You can rely on the business of a retained customer far more than a new one—if you make the happiness and loyalty of your existing buyers the priority.

Why Customer Retention Matters

If you look around your desk or room, you will likely find a product created by a major brand, a business near the forefront of its industry. It is doubtful that it was able to reach such a status by relying almost exclusively on the one-time purchase of customers in passing. After all, returning customers spend  67% more over time than first-time customers.

Successfully retained customers signify a meeting or exceeding of expectations to an exceptional degree. Customer retention matters because it forms the foundation of ever-increasing earnings and enables you to boost brand recognition and industry authority. These concepts are essential for building strategies to keep your company in business.

Understanding Your Customer Retention Rate (CRR)

One necessary component of developing sound strategies is knowing your customer retention rate, or CRR. Your CRR represents the percentage of existing customers your company successfully retains over a specific window.

Calculate your customer retention rate using the formula CRR = [(E-N)/S] x 100. “S” refers to your starting customers, and “E” represents the number of customers you have at the end of the period in question. Meanwhile, “N” stands for the number of new customers gained during this period.

For instance, If a company began the year with 80 customers, added 20 new customers, and ended the year with 60 customers, the calculation would look like [(60 – 20)/80] x 100. Its CRR would be 50%. Smaller businesses typically aim for a CRR rate of at least 20%. Meanwhile, a major insurance or media company would expect its CRR to stay above 79%.

Once you know your customer retention rate, developing long-term strategies to increase its percentage becomes easier.

14 Effective Customer Retention Strategies

In the following section, we discuss various approaches to help businesses strengthen their customer retention goals.

1. Build Customer Loyalty Through Shared Values

Is your company eco-friendly? Do you donate a portion of your earnings to a specific charity? Is it associated with wealth and affluence or youth and TikTok trends? Not only should your company have its own easily identifiable values, but you should also aim to share them with your customer base. When customers understand and relate to your values, it helps them identify with you and feel connected.

2. Frequently Ask for Feedback

Do not be afraid to ask your customers how you are doing, even if the answer is not as pleasant as you would hope. Even if positive feedback feels good, it is often the negative feedback that is more important. If customers aren’t happy, they will not buy from a business again. If polled, these dissatisfied buyers get asked about their decision before departing; their answers should help to improve lackluster service, making it easier to retain customers in the future.

One thing to avoid is having a single survey or poll and then using those results forever. Times change, and so do the needs and wants of shoppers. Make it a point to ask questions periodically and compare the nature of the newest results to previous requests for feedback.

3. Get Customers Excited About a Change—Or the Decision Not To

If the percentage of repeat customers drops because of boredom with your brand, one way to revitalize your consumer base is by changing things up. It can be as simple as giving your store or website a makeover. Even if your brand has not changed beyond looks, it can still feel to customers like they are experiencing a new store. Be mindful not to change too much or too fast, or you could lose customers.

The successful failure of “New Coke” remains a talking point decades later. Coca-Cola hoped to excite consumers enough to buy the new product. Instead, its attempted flavor change led to massive backlash, followed by appeals not to change the beloved recipe.

While Coca-Cola’s new product ultimately failed, the publicity generated by the event was its own success. The situation demonstrated that sometimes the best way to get customers excited about change is to decide to change nothing.

To a lesser extreme, McDonald’s has allowed the McRib to be an enduring favorite by occasionally changing its menu to bring the sandwich back for a limited time. These limited-time offerings lean into the fear of missing out, but promising to bring a popular product back can also mean guaranteeing returning customers who are excited to experience the item again.

4. Treat Customers As Humans, Not Data

It is no secret that customers are not fans of AI chatbots, as a common complaint is that these bots do not understand them. AI typically reacts to keywords and specific scenarios instead of the individualized human experience. They cannot offer the empathy that a customer may seek and only get from talking to a human. With this in mind, it is important to remember that customers are people, not data.

Analysis may help you understand things hypothetically, but through direct and empathetic interactions with customers, you gain the most accurate insight into their happiness or displeasure. Customers want to be related to and feel heard. Treating them as people and not just numbers on a screen can go a long way towards encouraging them to become repeat purchasers.

5. Be Easy To Understand

It is easy to assume that having the best product on the market automatically assures dominance, but this is not necessarily true. A rival company may outsell your business with an inferior product because customers find their explanations and marketing materials easier to understand. Ultimately, the more accessible you make the nature of your business, the faster they can decide if they want to shop with you.

A convoluted, over-explanation may drive shoppers away, while those who know precisely that your business serves their needs will feel more comfortable buying from you again and again.

6. Provide Quick Delivery Options

While many customers wait a few weeks to receive a product, some may want or need an item as soon as possible. Providing the option to get something days or weeks sooner may encourage some customers to return because they know they can get products faster from your company than they could from your competitors.

7. Make Returns and Refunds Easy and Reasonable

While mistakes happen, one way to assure a customer never buys from you again is to make returns nearly impossible and refuse to offer refunds. The returns and refunds process is a branch of customer service. Therefore, making the process pain-free and reasonable is crucial.

If customers know that they can count on you to treat them fairly beyond the sale, rather than disregarding them after receiving their money, they will trust you with future purchases.

8. Foster Word-of-Mouth Support

It is easy to associate the impact of word-of-mouth advertising with gaining new customers. However, it is crucial to note word-of-mouth customer advertisement can be used for customer retention. After all, good word-of-mouth discussion about your products or services .

For instance, a customer hears from a friend who repeatedly buys from you that they are happy. In that case, this not only has the potential to bring in new business but create a domino effect of retained customers spreading positive word-of-mouth messages about your brand with friends, on social media and more.

You should actively encourage word-of-mouth support however you can. Share positive feedback from customers through retweets on Twitter, or encourage customers to share their thoughts on TikTok and Instagram. The more visible and acknowledged your loyal customers feel, the more likely they will use their own online and in-person channels to share impressions about your company.

9. Make Customers Feel Good About Getting Associated With You

Though it might not get openly admitted, there are brands with which the public may want to be associated, while others would bring them embarrassment. In addition to sharing values with customers, another good strategy for retaining customers is to make them feel good about associating with you.

Suppose shoppers know that a portion of their purchase will go toward fighting childhood cancer or rebuilding the Amazon rainforest. In that case, it can provide a long-term feel-good factor that incentivizes future purchases.

10. Offer Direct and Empathetic Customer Service

Some companies are infamous for terrible customer service. A big part is how hard it is to speak with a representative directly. For example, it might be due to an overreliance on AI chatbots and phone services, or customers cannot easily navigate to the correct department.

Excellent customer service is a cornerstone of customer retention. When you offer customer service that is empathetic, easy to navigate and direct, it can go a very long way to helping you create a lasting, positive relationship with consumers.

11. Build a Customer Profile

By making a profile based on your existing, long-term customers, rather than focusing on new customers, you can instead lean into attracting those who are more likely to become part of your dedicated consumer base. Look at all the things that your retained customers have in common. Try to understand what separates them from one-time shoppers.

Information such as age, income, gender and lifestyle could be crucial to marketing more accurately to those most likely to buy from your company more than once.

12. Provide “Buy Now, Pay Later” Options

It is no surprise that the “buy now, pay later” (BNPL) model has exploded in popularity in recent years. After all, a 2018 survey found that 76% of consumers are more likely to shop where payment plans are available. For example, Delta customers who pay off airline tickets through Affirm or retail shoppers making purchases through Klarna or Afterpay.

The BNPL model offers a budget-friendly and transparent method of making purchases, and its growing popularity suggests customers could favor shopping with businesses that make such payment options available.

13. Use Gamification To Keep Customers Invested

Gamification is a crucial customer retention strategy, tapping into customers’ desire to feel engaged and rewarded beyond a single transaction. Retail spaces use gamification by turning the dollar amount of money spent in their stores into points applied toward future purchases. This approach provides a good reason for a shopper to become a repeat customer; the money they spent yesterday becomes the discount for tomorrow’s purchase.

Retained customers may make purchases repeatedly, storing points for a significant discount on an item they might not be able to afford otherwise. Through fun little rewards or missions, you can transform the shopping experience into a long-term adventure for shoppers, using mechanics that one had only expected to find in an online role-playing game.

14. Become Difficult To Replace

Being unique in a positive sense and very hard to replace can be a brilliant strategy for customer retention. After all, it is easier to hold on to customers when they understand that they cannot easily replicate their positive experience with your brand elsewhere in your industry.

Bottom Line

Some approaches may work better than others depending on the type of company you own, for instance, a brick-and-mortar location versus an online store. What is important is developing the right customer retention strategies for your business.

Whether you build a profile, lean into gamification or vastly overhaul your customer service, these steps are essential for improving customer experience. Satisfied customers come back; dissatisfied customers do not.

Frequently Asked Questions (FAQs)

What are customer retention strategies?

These are plans and tools to develop a consumer base, each geared towards fostering customer satisfaction, trust and loyalty while encouraging customers to become repeat spenders.

Why is customer retention necessary?

Studies show that efforts to retain customers are more profitable and less expensive than when companies solely focus on bringing in new customers.

What is a company’s customer retention rate?

A customer retention rate, or CRR, refers to the percentage of repeat customers a company earns during a specific period.

How do I calculate my customer retention rate?

The formula is CRR = ((E-N)/S) x 100, with “S” for starting customers, “E” for customers you end a period with and “N” representing the new customers gained during that window. You multiply the amount by 100 to determine the percentage.

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