A new world order
Customers today have a wide range of resources to help them choose a brand to address their needs. With multiple players in the market and the bargaining power of the buyer increasing, market forces are slowly tipping the scales in the buyer’s favor. It is in this context that businesses are starting to see sense in investing more time and money in customer retention.
Studies show that acquiring a new customer is five times more expensive than retaining an existing one. Measures to retain a customer result in a steady inflow of revenue. More importantly, retention mitigates customer migration to competitors, and fosters an environment for these customers to become influencers and ambassadors in the future. With the right levels of engagement and by employing a customer experience strategy attuned to the customer’s needs, businesses can work towards achieving high levels of retention and also eradicate churn. To stay relevant and grab mind share, brands need to constantly measure themselves at all stages with relevant metrics to ascertain their performance.
In an ideal world, Pareto’s principle, which is omnipresent across commerce, software, and economics, appears to point to the same direction: 20% repeat customers contribute 80% of the revenue.
Customer lifetime value (CLV)
The textbook definition of customer lifetime value (CLV) is “the total revenue a customer contributes during the period of their relationship with the brand, minus the cost of acquiring and catering to the customer”. Customer retention leads to a higher CLV in the long run.
When we consider an alternate formula for CLV:
CLV = Average revenue per transaction x Number of transactions during the customer’s journey x Number of years of retention
While the average revenue per transaction will increase with better cross-sell and up-sell capabilities, the number of transactions and number of years of retention depend entirely on creating an emotional bond that facilitates instant recall and trust. In many instances, customer experience is about under promising and over delivering and going above and beyond the boundaries of what is normally expected. Being invested in providing positive customer experiences, engaging with the customers at the right place and at the right time, and providing ‘WOW’ moments are ways that have a direct bearing on the years of retention.
Revenue generation from customer loyalty
Offerings rolled out by businesses vary from loyalty programs to discounts, to sales promotion strategies like offers, freebies, and rebates. Yet, customers react better to a personalized touch, better listening, an active presence across preferred channels, and a consistently good experience.
Today, with increased digitization, it is imperative that businesses are able to stitch together engagements across multiple platforms to provide a seamless experience to the customer.
As the customer’s relationship with the brand increases, becoming an ambassador for the business is the next step. Word of mouth marketing is still one of the most efficient methods to add to the company’s bottom line. Loyal customers will recommend, advocate purchase, and will also be the first people to be consulted when new customers want to purchase the product. As the number of loyal customers grow, the steady inflow of revenue continues, enabling businesses to invest more in research. This will help them build better products, improve their offerings to existing and new customers, thereby leading to a win-win situation for both the business and the customers, who now have access to a varied suite of products catering to more of their needs.
Implementing the right customer engagement strategy is sacrosanct for the success of any business. It therefore makes sense to understand what the rules of customer engagement dictate. Backed by a survey which covers over 3000 customers across multiple regions, industry experts Adrian Swinscoe and Angelica Reyes Froment present a comprehensive report in a webinar that discusses customer engagement and more.