Customer retention

- [Instructor] Acquiring customers is really important for organizations that are getting established. But over time, all brands do best by focusing on retention. In order to retain customers, you need to be thinking about what brings customers into your brand and what keeps them interested and engaged with your brand. So think about, number one, just measuring your retention rate. If you thought about the number of customers who met your customer definition, that is, they bought enough to be profitable and they prefer your brand to alternatives, how many of those customers do you have? And then how many of those do you still have at the end of the year or the end of the month? That is your retention rate. And how is that relative to other companies? You may be interested to know that in the US as a whole, on average, the retention rates are about 85%. If you're looking at companies that have 90% retention rates, they tend to do a great job of holding onto their customers. And if you look at companies that are not doing very well, their retention rates tend to be around 60%. A few years ago, in fact, when Verizon and AT&T were competing fiercely for customers and helping customers of the other break contracts as a way to bring them in for just a few months, often, their retention rates dipped to 60%, and that sounded alarm bells in the entire wireless service industry. So certainly you want to be higher than 60% with your retention rates, and again, if you can get to 90%, that would be fantastic. And to measure retention costs and margins, what you want to be doing is thinking about what investments you're making today to return your customers. So make a list of your expenses by type. So product, service expenses, communications expenses, sales expenses. What percent of those expenses today are going to retain customers and what percent of those are going to new customers, going out and getting new customers? Come up with a cost per retained customer and think about whether that's enough relative to the margin that those existing retained customers are bringing into your organization. And to calculate the margin, what you want to do, of course, is think about how many products and services retained customers are buying on a per customer basis. And if you can, try to subtract the cost of goods sold corresponding to those products and services. Compare your cost to your margin per customer. And what I have found with many organizations is that not unlike our spouses, we tend to underinvest a bit on our retained customers. You want to make sure that you are balancing your goals of growth through new customers acquisition as well as your growth goals through retention, that you're not underinvesting in retention. Now, the types of initiatives and investments that companies who want to retain customers make, they tend to focus on incremental innovation. And that might sound a little counterintuitive. It's not breakthrough innovation, but it's iterative or incremental innovation. You want to make sure that to keep customers, you're not drastically changing the products and services, because it actually might disrupt their experience with the brand. You want to emphasize loyalty programs, of course, but the types of loyalty programs that are not easily translated to discounts, but rather are more focused on delighting existing customers in a way that they're not feeling that the relationship with the organization is transactional. So loyalty, of course, is emotional, has an emotional component, and make sure your loyalty programs are not simply adding points and then giving people discounts. That generally does not translate into loyalty. In terms of your sales force, the sales force really should be focused on providing great service as opposed to selling. Many organizations create farmers and hunters, and it's the farmers, the people who are a little less flashy, but are really knowledgeable about technical aspects of the product, that are going to be most helpful for retention. And when you're thinking about communications, lastly, you want to be engaging with customers so that they start feeling part of your brand. Examples of very famous image communications campaign that help companies drive loyalty were, for example, the Dove real beauty campaign, engaging especially women around beauty and thinking about Dove as their partner in achieving their goals.