A business is created and built to meet a consumer need. Customers are the foundation of a business and yet we can often neglect our current customers, those who brought our business to where we are today. Instead, we focus our attention on the pursuit of the next customer. And yet the economic argument for nurturing and retaining our current customers could not be stronger.
Consider that the probability of selling to an existing customer is 60-70% as compared to 5-20% when selling to a new prospect. Moreover, attracting that new customer can cost 5 -25 times more than retaining a current customer. Then bringing that new customer up to the same level of profitability as a current one can cost up to 16 times more.
When we take care of our current customers, we take care of our bottom-line. Research by Fred Reichheld, creator of the Net Promoter Score, found that an increase in customer retention rate of just 5% can increase profits from 25% – 100%. And in research by Bain, a 10% rise in customer retention can yield a 30% increase in the value of a company. Surprising? Consider that nearly 85% of people will pay more for a better experience according to a Customer Experience Impact Report by Harris Interactive.
So, with higher odds, lower costs and high returns, how do we strategically focus on Customer Retention as a business growth driver?
First, we need to recognize that our allocation of marketing dollars may need recalibrating. In a 2015, small business survey by Belly, 72% of those surveyed planned to allocate the majority of their marketing budget to customer acquisition. In a 2017 survey of Chief Marketing Officers, 60% stated that they spend less than 30% of their marketing budget on customer retention. And by some estimates, 95% of marketing budgets are spent on attracting new customers through social media and other advertising channels.
Second, we need to recognize the dependence we have on our current customers. According to Gartner Group, 80% of future profits will come from just 20% of existing customers. And it is a relationship we simply cannot afford to take for granted. Consider that up to 90% of people will leave after a single bad experience. Then they will tell their friends. Online. Immediately. In fact, 52% of consumers have switched providers in the past year due to poor customer service. And 71% of consumers have ended their relationship with a company due to poor customer service.
Finally, we are marketing to new generations of consumers who are ready and willing to be loyal to a brand. According to American Express, Millennials, those born between 1980 and 2000, are more brand-loyal than any other age group. 62% of Millennials tend to buy only a preferred brand compared to 54% of the wider population. And research by Software Advice found that 96% of Millennials are using restaurant loyalty programs.
Beyond the commitment to create and deliver remarkable customer experiences, we need tools to engage our customers and equip our frontline staff and managers to address customer issues in real-time, before they leave the business. Feedback is essential for businesses to successfully adapt to changing consumer trends and stay ahead of their competitors. We need to thank our loyal customers and act on the information and insights they provide to us. After all, 80% of brand switchers feel that the company could have done something to retain them.
So why don’t more companies make customer experience management fundamental to their business success strategy? Blame it on the “customer experience perception gap”. If you survey executives, 80% will say they deliver an excellent customer experience. If you ask their customers, only 8% will agree.
How can that CX gap be closed? It starts with 7 simple steps.
7 Steps to Increasing Sales with Customer Retention
Driving customer retention is all about leveraging “Return on Relationships (ROR)©” with both your customers and the people that create the customer experience – your employees. The primary goal of this article is to provide a step-by-step approach to:
- Better understand the experience your customers want
- Engage and empower teams to continually deliver the desired experience
- Use customer and team insights to increase marketing ROI.
Step 1: Get feedback before customers leave your business
The key to reliable customer insights is to increase both the quantity and quality of customer feedback.
Traditional market research strives to address “quantity” by identifying a core customer demographic and harvesting common attributes and desired experiences across that group. In contrast, customer experience management is about connecting with a specific group of people – customers that have been attracted to your business, instead of just. a generic demographic group. This Customer Experience (CX) approach typically transcends specific demographic constraints.
The best strategy for increasing both the quantity and quality of customer feedback is to ask for it before customers leave the business. This is the time when customers are most motivated to communicate about their experience, both good and bad.
In consumer-facing and high transaction businesses, this typically means introducing feedback at point-of-purchase. Feedback at the time of payment is not a new concept. It has traditionally been done in the form of a paper comment card presented with the bill. With intelligent payment devices, we can now deliver a “digital comment card” as part of the payment process.
Step 2: Respond to customer feedback in real-time
By 2030, 75% of the workforce will be Millennials. This generation prefers to communicate digitally, regularly, and with social transparency when sharing their experiences. With that also comes an expectation of receiving an immediate response to their communications.
By sending alerts to floor managers when a customer has had a poor experience, it opens the door to being able to resolve problems before guests leave and share their dissatisfaction on social media.
Customer experience management can greatly reduce the need for traditional reputation management by giving customers a private versus public venue to share a poor experience. Conversely, you can also significantly increase rankings on web searches and social review sites by inviting customers to share good reviews.
Without digital technology, most businesses only have time to respond to poor customer experiences. They ignore the top 20% of customers who are their biggest brand advocates, come in most often, and spend the most money. Although it’s imperative to respond immediately to poor experiences, the biggest economic opportunity lies in strengthening relationships with your most valuable customers, by immediately responding to both positive and negative feedback.
Step 3: Create Customer Habits with Incentives to Return
Most of us have a handful of businesses that are “top of mind” when we are making decisions about where to spend our money. Research tells us that it takes at least five customer visits to form a habit.
So how do we bridge that gap between the initial customer experience with our business and getting them back often enough to become “a habit” – becoming one of those companies that immediately spring to mind?
The key is to use every interaction as an opportunity to engage customers in their next visit. Use your digital comment card to find out what offers would be most relevant to your customers and increase the frequency of their patronage.
Automatically respond to all customers that give feedback with time-based, one-time offers they can redeem the next time they come in. These could be in the form of feedback for contest entries, gift cards, or discounts with a minimum purchase, or a unique product offer.
Step 4: Build Private Brand Equity with Customer Communities
OpenTable, TripAdvisor, and Yelp generate huge revenues through customer referral and feedback services. They have developed such powerful customer communities that most companies feel compelled to pay for their services.
However, although these companies may offer an effective customer acquisition channel providing valuable customer feedback, they are costly and don’t necessarily support customer loyalty.
Effectively, they bring a new customer at a significant per customer cost and then take those customers away by recommending competing businesses. You lose control of your greatest asset – your customer relationships along with the ability to directly influence your customers’ buying behavior. Not only are you competing for your customers’ next visit – you are building another company’s marketing list.
So, how do you optimize your investment in public customer acquisition channels? When new customers come in the door, invite them to join your private customer community. Use VIP or “preferred customer” benefits to build your customer marketing lists. Ask customers what would bring them back in more often. Build loyalty and engagement by making your customers feel special. Use targeted marketing programs that include community news, invitations to special events, opportunities to support charities with their patronage, preferred seating, or VIP special product perks.
Build your brand equity instead of others.
Step 5: Action Customer Feedback at the Store Level
Most customer experience management initiatives deliver customer feedback directly to Headquarters. Executing on customer experience management solely at the headquarters level has its challenges.
First of all, it’s difficult to interpret customer data in a way that makes universal brand decisions work across all geographic locations. Each store typically has a unique “customer culture”, even when they are in different areas of the same city. Store managers are in the best position to understand those cultural nuances and act on customer and team insights at the local level.
Secondly, according to a recent survey by International Data Group (IDG), analytics and data alerts are barely trickling down to frontline workers. The people that are ultimately accountable for creating that experience are not consistently being provided the customer intelligence they need to make a difference.
In contrast to a headquarters-driven CX initiative, consider a customer experience management initiative where specific actions are identified and executed at the store management level. Customer feedback is used as a training and development tool that helps managers understand their impact through the eyes of their customers. Make brand decisions at the headquarters level – take specific actions that raise the bar on your customers’ experience at the local level.
Get store managers responding to customer feedback and making suggestions on how to improve the customer experience and increase sales in their location. Hold them accountable for solving problems that impact the customer within a specified timeline.
Send them weekly CX reports that show them the direct impact of their actions on customer satisfaction and sales.
Step 6: Engage Teams in Customer Success Management
Your staff members are a “goldmine” of customer knowledge that too often goes untapped. Find out what your employees know about your customers. Hold them accountable for their impact on your customers. Acknowledge them for customer experience excellence!
Great managers and visionaries like Richard Branson, intuitively know that “If you look after your staff, they’ll look after your customers. It’s that simple.” Bain and Company have studied and further substantiated that employee satisfaction has a direct correlation to customer satisfaction.
Improving team morale can be as easy as increasing communication. Ask team members what they need to deliver a better customer experience, including improvements in the workplace. Develop an internal communications platform to share ideas on how to improve both the customer and team experience.
In addition to increases in customer satisfaction, did you know that happy and engaged employees have 23% higher productivity? Most noteworthy, “The engagement level of employees who receive recognition is almost three times higher than the engagement level of those who do not,” according to the IBM Smarter Workforce Institute.
Taking employee engagement to the next level, you can directly connect frontline teams to customer feedback as a powerful training and development strategy. Acknowledge individuals and teams for behaviors that bring customers in more often. Build a customer-centric culture by challenging team members to continually raise the bar on their customers’ experience.
Retaining talented employees that keep customers coming back are part of an essential “thrive vs. survive” business strategy. Communicate, acknowledge and engage frontline employees as an integral part of managing your customers’ experience.
Step 7: Benchmark CX to Sales Performance
According to management guru Peter Drucker, “you can’t manage what you don’t measure”.
One of the biggest challenges with the adoption of single-function software management tools is the fragmentation of data across multiple databases. Not being able to see the interdependence of data by having it in one place, makes collaboration between departments difficult, resulting in silo-based management.
The first step to fostering a more collaborative, customer-centric management team, is being able to see all the “CX drivers of sales and profits” in a single management reporting platform. Performance targets can be identified and monitored for their impact on both CX and sales.
Operations, marketing, and human resources can clearly see how they co-create the customer experience. They can more easily understand how the KPI specific to their role in the company contributes to the big picture, creating synergy.
They can start to answer key CX ROI questions like:
- Who are my most valuable customers?
- What can I do to increase the frequency of their visits?
- How can I increase Customer Lifetime Value?
- Which servers are driving customers away or building the brand?
- What products are customers specifically coming in for?
- Which ones are creating a negative experience?
- Which promotions deliver the highest returns on marketing spend?
- How do we get customers to choose us over competitors more often?
- Which are the top/bottom performing locations/managers?
- How is our brand doing compared to our competitors?
Management dashboards highlight where management attention is needed most.
Alerts can be automatically generated when data variances indicate the need for action, such as when a high-value customer has a bad experience.
Artificial intelligence can emulate how a senior manager would make decisions to create a “digital management coach” for junior managers, recommending specific actions to improve the customer experience and increase sales and profits.
DriveCX is a customer experience management software company specializing in engaging teams to continually deliver amazing customer experiences.
For more information, contact:
Dale Dubberley / CEO
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