Returning customers are worth more than you think. So, here are 4 easy to implement ways to increase customer retention and customer retention rates.
If you’ve listened to any of the top conversion experts lately, you’ve likely noticed them distancing themselves from the word “conversion”.
While the goal of “conversion optimizers” is ultimately to increase revenue, the term is often misinterpreted in a market where acquisition receives an unhealthy level of focus.
Today, we want to spend a little time talking about something that is as important to optimization as the rate at which you acquire new customers.
You probably already know the statistics. Acquiring a new customer is 5 to 25 times more costly than retaining an existing one. A joint study by YotPo and Riskified shows that while returning customers make up only 15% of all the shopping online, they account for a third of all online shopping revenue and spend 3x more than one-time shoppers.
And yet the focus on customer acquisition remains strong.
We get it. We spend the majority of our time talking about acquisition here at Conversion Sciences, but it’s important to remember that converting 50% of our visitors isn’t worth a whole lot if we can’t retain any of them.
4 Ways to Increase Customer Retention and Customer Retention Rates
You can’t have growth without retention, so today, we’re going to be discussing 4 straightforward ways to improve your own customer retention.
#1. Focus on Value over Loyalty to Retain Customers
First things first.
There’s a lot of talk in the retention space about creating “loyal” customers. Everyone wants loyalty, and many businesses mistakenly believe that if customers are members of a loyalty program, they are in fact “retained”. But as Taddy Hall notes, many people participate in loyalty programs simply for the chance of occasional savings and are part of the competitors’ loyalty programs as well. In other words, they are presumably “retained” by “four or five competitors in the same industry”.
Data from COLLOQUY, a provider of loyalty marketing research, shows that although the average American family holds membership in 29 loyalty programs, they are only active in 12 of them. In other words, only one third of the loyalty programs actually translate to customer retention.
If this sounds an alarm in your minds… good. It should!
Creating a membership program and slapping the word “loyalty”on it is in no way an automatic means to increasing customer retention rates. Frankly, loyalty isn’t even what we should be aiming for.
Ultimately, value is what creates loyalty, and by extension, value is what we should focus our efforts on creating. When you offer more value than your competitors, loyalty is a natural byproduct.
So, How do we Define Customer Value?
That’s an insanely cliche word – “value” – so let’s wrap some meat around it. As Katrina Lerman writes for AdAge “we are loyal to the companies and retailers who show us they understand us through the products they offer and the customer experiences they create.”
Let’s say I have an app called Imgur that I use to scroll through interesting images and visual resources and occasionally favorite them. Now let’s say that myself and about 50,000 of my online friends have been clamoring for Imgur to add a particular feature we want – for example, the ability to add folders to our collection of favorites so we can sort them by category for easy reference.
Imgur could do one of two things:
- Add value to their app by creating a feature a large segment of the community has been persistently asking for over the last few years
- Or redesign the interface for the 3rd time this year.
One adds real, tangible value. One doesn’t.
I put this way to improve customer retention as #1 for a reason. When you approach customer retention through the lens of loyalty, you end up in weird places. But if you approach it through the lens of adding more value, you are targeting a goal that consistently results in increased retention.
#2. Show up… with humans.
We are living in the age of automation, and that means that more than ever, there is a premium on human interaction.
At the World Domination Summit, Derek Sivers shared a few humanizing tactics that he and his team used to grow CD Baby into a multi-million dollar music distributor.
The first one, believe it or not is that they answered the phone. ((That’s right, people answering the phone!))
You would think that this would be obvious right? But I think there are so many people, that in their heads they’re already this billion dollar business and, “Hey man, answering the phone doesn’t scale, so we’re trying to make it so that nobody can contact us. You just use our online forms.”
But because of this, at music conferences they would overhear one musician telling another, especially in the early days when not a lot of people had heard of CD Baby yet, “Oh you’re not on CD Baby yet. Dude, CD Baby is awesome. You know what? They answer the phone. You can call them and they answer and you can talk to a real person!”
They’re like, “No way!”
“Yeah way! Amazon won’t do that.”
And they weren’t talking about their cool graphic design, or their fancy CSS Stylesheets on their website. No. None of the other stuff mattered.
They answered the phone. And that was enough to get his friend to sign up.
The other humanizing example, was a geeky little thing they did one day. It only took two lines of computer code to intercept outgoing emails and put the person’s first name into the from header, not just the to header. So, if an email was going to Sarah, for example, it would say the email was from CD Baby loves Sarah.
But people loved it and then they would forward it to friends, and friends would tell friends, and friends would come and buy CDs from them. Just because a humanizing touch.
They had a policy that “changes need pizza.” The reason for this is because every time a new album came into the store, it would take about 45 minutes of work to lay it on the scanner, scan the album art, photoshop it, drop the CD into the bin, rip it fully and then take the little clips, and do all the stuff, and fix their bio.
And every now and then, somebody would contact them two weeks later and say, “Uhhhh, can I change my choice? I want to send you a different album art cover, or I want to change the way my tracks are done.”
And they would say, “Alright no problem, just send us a pizza.”
And they would reply, “What?”
“Yeah. Look we’re happy to do it, but it’s kind of a pain in the ass. We’re going to have to go out to the warehouse and find your CD. If you don’t mind, just send us a pizza and we’re happy to do it.”
And they’d say, “You’re serious.”
“Yeah, serious. Here’s the phone number of the local pizzeria, they know us, just tell them you want to buy CD Baby a pizza. They already know our favourite pizza, so you just call them up with your credit card, say I want to get CD Baby a pizza. The pizza shows up, we’ll do anything you want.”
The real point was, this is humanizing. I think too many of us start businesses and you want it to look big, and you start to say things on your website, like “we” instead of “I”. Even though it is just you. We try to do these things to make it look corporate. But when you do these things to humanize it and remind people that it’s just a real person back here — we’re just real people with a lot of work, so get us a pizza, we’ll do it — People love that.
“Oh my god dude, you have to sign up to CD Baby.”
“Dude, they changed my album because I sent them a pizza.”
“Yeah, way. You gotta sign up.”
On one occasion, a customer asked for a plastic squid. When the customer saw a real plastic squid in the package of his order, he went nuts and posted this video on Youtube.
Showing up for your customers is one of the most powerful ways to build retention.
#3. Take customer service seriously.
Speaking of showing up, customer service is the hallmark of customer retention. This can never be emphasized enough. According to Customers that Stick, 82% of consumers in the US said that they stopped doing business with a company due to poor customer experience.
Many businesses tend to focus on attitude and personality when training for customer service. They think friendliness is the defining factor when it comes to a great customer service experience.
On some level this is true, as can be seen from the above statistics, but there’s another piece you can’t forget. Competence and problem solving skills are often more instrumental to the customer leaving satisfied than simple demeanor.
As Fast Company co-founder Bill Taylor explains, you should focus on hiring people with good attitudes and then focus your training on equipping them to deliver a high level of service to customers.
“Now that’s an effective prescription for innovation! Over the years, as I’ve studied high-impact organizations that are changing the game in their fields, they’ve adopted a range of strategies and business models. But they all agree on one core “people” proposition: They hire for attitude and train for skill. They believe that one of the biggest challenges they face is to fill their ranks with executives and front-line employees whose personal values are in sync with the values that make the organization tick. As a result, they believe that character counts for more than credentials.”
A lot of businesses hire cheerful staff and then just throw them into the ring with only skeleton training. If you want top level customer service, you don’t just need top quality people. You need top quality people who have received top quality training.
#4. Go deeper than explicit complaints and requests.
Providing quality customer service is the baseline rather than the goal. According to “Understanding Customers” by Ruby Newell-Legner (accessed from Helpscout), a typical business hears only from 4% of its dissatisfied customers. If you want to fully understand what your customers want, you’ll need to dive deeper than provided feedback.
As Carmine Gallo discusses, brands that can anticipate a customer’s needs and meet them without needing to be asked are often the ones that garner customer loyalty. To illustrate, he shares a personal anecdote from a family vacation:
I recently brought my family to a 5-Star San Diego resort, The Grand Del Mar, named the #1 hotel in the United States by Trip Advisor. It sits on a beautiful property in the hills, but there are plenty of gorgeous locations in San Diego. It’s the “attentive” service that Trip Advisor featured in its review and has earned my loyalty. But exactly what does the staff do that sets them apart and, more important, what can all businesses learn from their customer service techniques? The Grand Del Mar’s customer service ‘secret’ became very clear to me on this recent visit—the staff finds small ways to unexpectedly delight their customers and they do so by anticipating unexpressed wishes. Here are just a few of many examples I noted:
– My daughters discovered a small sand area near the pool. Within seconds—not minutes—a staff member casually walked by and, without saying a word, dropped off sand toys for the kids. The kids looked up and there they were, seemingly out of nowhere.
– The valet brought up our car and asked where we were heading. “Legoland,” the kids shouted! By the time I had finished loading the trunk, the valet had placed four water bottles in the car. “It’s hot today. You’ll need these,” he said.
– Vanessa and I decided to treat ourselves to a special occasion dinner in the hotel’s premium restaurant. The hotel offered an inviting play area for children, called The Explorers Club. The dinner was running a bit longer than the kids club would remain open and the restaurant’s location was a 5-minute walk back to the main hotel. “I noticed that you had courtesy cars at the lobby. Can we request one to pick us up as soon as we’re finished?” I asked the waiter. “It’s already been done. The car is waiting,” he responded. “And we informed the club that you’re on your way.
At the end of our stay, the hotel desk employee asked if we had our boarding passes and if we needed directions. I asked the person why everyone seems to anticipate the needs of a guest. “It makes us stand out,” he said. The employee was exactly right. The reason why this level of service leaves a positive impression—and why you, as a leader, must coach to it—is because it happens so infrequently that customers will pay a premium for it. I’ve studied the best brands in the area of customer service and all of them train employees to anticipate unexpressed wishes. It’s a key component to an exceptional customer experience.
This is easier said than done, and ultimately comes down to understanding your customers, the demographics you are targeting, and the individual customer personas. If you are newer and still learning about your customers, deriving insights through competitive analysis is a good strategy.
Conclusion: 4 Straightforward Ways To Increase Customer Retention
Remember that retention isn’t a step. It’s a lens. If you aren’t building your acquisition and optimization strategies through the lens of costumer retention, any retention efforts you make will be superficial at best.
Provide value. Show up with some humanity. Take customer service seriously. And go deeper than initial feedback.