Establish a continuous customer retention strategy

Customer retention is a top priority for business leaders looking to remain competitive. An effective customer retention strategy should help your company keep its loyal customers healthy and attract new ones. Generating repeat business is important. A McKinsey report on customer acquisition (link resides outside ibm.com) states that companies need to acquire three new customers to make up for the business value of losing one existing customer.

Retaining customers has become more difficult in recent years.

Competing against this goal is the fact that customer journeys today are more complex. It is more difficult to meet customer expectations and retain current customers. IBM Institute for Business Value The CEO’s Guide to Generative AI for Customer Service The majority of service professionals (60%) (link resides outside ibm.com) say customer expectations are higher than before the pandemic.

Organizations that are successful at retaining customers can benefit from encouraging customer loyalty. Companies that understand the importance of customer retention will invest in the necessary customer experience management. Retention is best achieved by overcoming switching barriers, maximizing the value of your products and services, meeting customer expectations, and resolving customer pain points. This is achieved through a blend of customer service, marketing, customer success, and product development.

Customer retention today requires a blend of human operational discipline, human ingenuity, and technological applications, especially artificial intelligence (AI).

Steps to create an effective customer retention strategy

An effective customer retention strategy starts from the moment your first customer makes a purchase. It is the company’s duty to optimize the customer experience to encourage repeat customers and grow a healthy customer base.

Organizations should design company-led or customer-led initiatives to encourage brand loyalty and word of mouth. The goal is to activate first-time buyers and then prevent them from switching to competitors. Here are some steps to building an effective customer retention strategy:

1. Make excellent products

Ultimately, the initial battle for customer loyalty will depend on whether the product or solution the customer is purchasing directly or from the retailer is worth the money spent. The calculation is as simple as this. Companies must continually blend existing and new products to meet customer needs or address customer pain points. The customer retention components listed are less effective if the customer immediately regrets the purchase.

2. Completion of omni-channel marketing strategy

Businesses can reach early customers with a powerful omnichannel marketing strategy that creates personalized experiences. First of all, your marketing needs a strong message and strategic targeting to attract new customers. This allows organizations to remind existing customers of their solution through various channels and encourage those customers to upgrade or purchase a new solution. AI and other technologies will make omnichannel marketing more powerful now and in the future.

3. Strengthening customer experience (CX)

An effective customer retention program is only possible if the overall customer experience is firing on all cylinders. You need a great onboarding strategy to keep your customers happy from day one. Next, you need to use strong customer engagement initiatives to keep your marketing engine going for your existing customers. Seeing your marketing message strengthens your interest in the product.

It’s important to collect customer emails and consistently send them product news, tips, and offers to keep them interested in your existing products and what’s new from your brand. Companies that provide e-commerce services must make it simple for existing customers to purchase these new products, thus continuing the cycle.

4. Gather customer feedback

We collect, analyze and disseminate customer data through reviews and surveys. It’s also important to track and analyze social media conversations about your brand. Not all customers contact the company directly. By tracking what people say online, companies can track and resolve customer problems. This shows that you are interested in listening to customer complaints and resolving them.

5. Prioritize customer support

Your customer support team is a critical part of customer retention. If a problem occurs with a customer’s purchase, your customer support or customer care team will need to step in to resolve the issue. To keep customers happy and willing to buy the company’s products, the company must respond promptly to problems. Companies should also introduce self-service tools to help customers who prefer to find answers on their own.

6. Embrace AI

Companies have a wealth of new technologies they can use to increase retention. Businesses can use artificial intelligence (AI)-based tools such as chatbots and customer relationship management (CRM) systems.

For chatbots, you can use generative AI to provide stronger answers to users, and natural language processing (NLP) to decode customer inquiries and provide automated responses.

For CRM, AI and machine learning can be used to automate the discovery and analysis of the customer data you collect. Large Brazilian bank Bradesco chooses IBM Watson® to personalize customer service interactions. IBM has trained Watson on 62 products and can now answer 283,000 questions a month with 95% accuracy, with only 5% requiring additional human assistance.

7. Invest in your customer success team

These investments are especially important for companies that sell as-a-service solutions or expensive products or services. Customer Success works directly and proactively with customers to ensure high customer satisfaction with your product or service. Provide best practices to customers and solicit feedback to improve the product.

If your company sells digital products, you can track customer usage and increase promotional efforts if customer usage has decreased (a sign of dissatisfaction). For products or solutions that renew annually, your Customer Success team can work with your sales team to secure commitments in advance of the renewal date.

8. Communicate mission and values

Many customers, especially millennial and Gen Z buyers, are becoming more invested in an organization’s mission and values. Organizations with a strong mission or values ​​should invest time and budget into communicating their point of view through advertising, direct-to-consumer messaging, and customer engagement.

This communication is especially important if your organization’s prices are higher than those of your competitors. For example, knowing that they support an ethical organization that gives back to the community will make it more difficult for values-driven customers to choose competitors who do not share that perspective.

9. Make returns or refunds easier.

Customers may request a refund or exchange a product for a variety of reasons. Organizations that make this process difficult may experience short-term benefits (they do not have to subsidize the cost of the product). However, they are very likely to lose the loyalty of their customers and will eliminate their chances of selling more products in the future. Organizations interested in maintaining long-term customer loyalty must accept temporary challenges to achieve long-term success.

10. Track customer retention metrics

Customer retention initiatives all provide valuable insights that businesses can use to recalibrate their approach and set key performance indicators (KPIs). At the highest level, you want to know how many new customers you have and how many customers you have over a period of time. First, you need to identify the time period you want to track (e.g. 1 month, 6 months, 1 year). You need to track the number of customers at the beginning and end of the period.

This can help you generate important metrics like customer retention rate (CRR) and customer churn rate (CCR). Every company is different, but Salesforce recommends aiming for a CRR rate of 85% (link resides outside ibm.com). By adding information about that customer’s purchasing lifecycle, you can also identify customer lifetime value (CLV) and net dollar retention (NDR). You should also track your Net Promoter Score (NPS).

11. Use a customer loyalty program

To encourage repeat purchases, companies sometimes need to reward people for patronizing them. Customer loyalty programs can encourage customers to buy more from your company. Another option is to create a customer referral program where current customers can receive incentives when they refer new customers to your company.

Why a customer retention strategy is important

Customer retention is a necessary component to increasing your company’s profits. According to McKinsey (see ibm.com link), happy customers tend to make repeat purchases over long periods of time, which drives “80% of the value creation achieved by successful growth companies.”

By prioritizing and excelling at customer retention, your company can secure a healthy revenue base and focus on hyper-rapid growth. They can achieve this by recruiting new customers and upselling or increasing the amount of products that existing customers purchase.

Satisfied and loyal customers are also more likely to share their experiences through social networks. Word-of-mouth recommendations and testimonials can help you attract new customers, improve brand awareness and reputation, and reduce costs while increasing the effectiveness of your marketing efforts. Therefore, customer retention should be a key component of any business strategy.

Customer Retention Solutions

A Forrester Consulting study on the financial impact of IBM Watsonx™ Assistant™ on an organization’s customer service found a 370% ROI over three years and a cost savings of $6.00 per included customer interaction.

IBM iX® helps the world’s most influential companies create experiences, products and services that reinvent their relationships with customers and employees. IBM modernizes customer and field service operations with data and AI to help companies deliver great customer experiences, drive revenue, improve customer retention, and maximize business value.

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