Five Factors That Influence Customer Retention

I’m sure you’ve heard it time and time again: convincing new customers to make a purchase is much more expensive than trying to convert existing ones. In fact, increasing your customer retention rate can boost profits anywhere from 25 to 95 percent.

Furthermore, acquiring a new customer can be up to 25 times more expensive than keeping a current one. With prices for online ads constantly rising, it becomes more important than ever to keep your existing customer base satisfied.

Let’s look at the five factors that positively influence customer retention.

Product Quality

A 2017 study conducted by Morgan Stanley showed that 92 percent of iPhone users eventually plan to upgrade to a newer version. Or take Netflix, where over two-thirds of its customer base keeps being subscribed to the platform more than 12 months after their initial sign-up.

Now what makes customers coming back to these products on a regular basis? One major factor certainly is the perceived quality of their offering. While quality is a highly subjective term, there are certain factors to positively influence it.  

Reduce Friction

If you ever shopped on Amazon, you have seen firsthand how frictionless and easy it is to conduct a transaction. Existing customers can purchase a product within one to two clicks.

It is so easy, even your 80-year-old grandma could use it.

Friction can be reduced in many ways. First and foremost, it is advised to minimize the amount of steps required to perform a desired action.

Furthermore, visual separation (e.g. through colors) can make it easier for your customers to find what they are looking for.

Additionally, it can be crucial where you place certain functions and how easy they are to find and access.

High Level Of Personalization

Ever wondered why there is always something interesting to watch on Netflix? That’s because they know exactly what you like.

Their recommendation system looks at factors such as viewing history, what other members like, or even the type of device you watch on. And because they are so damn good at knowing what you like, people keep coming back to use their service.

Product Engagement

Product engagement deals with the frequency and intensity with which your customers use your product. The more engaging it is, the likelier are people to come back.

A great way to think about product engagement is the Hook Model created by Nir Eyal. It is a framework for building habit forming products.

Take a look at the video below for a detailed explanation:

Companies such as Facebook and Snapchat utilize this to their advantage. By making a product habit forming (and some would say addictive), users are intrinsically motivated to keep coming back.

Relationship Quality

There are many ways you can make a lasting impression with your customers and maintain a great relationship.

Warm Welcome

First impressions do matter. You want your customer to have a delightful first experience, so that the chances of them coming back increase.

Luckily, giving your customers a warm welcome isn’t too hard. Sending discount codes after the first purchase, free add-ons or a simple “thank you” from time to time are not too hard to implement.

High Level Of Customer Service

According to Gartner, 32 percent of customers will stop buying from you if they have had bad experiences with customer service.

Not convinced yet? Then what about Microsoft stating that in 96 percent of all consumers, the level of customer service takes a key role in their buying decision.

A great customer service involves aspects such as:

  • Not ignoring any service requests
  • Training your staff to handle incidents fast and reliably
  • Exceeding customer expectations by going the extra mile
  • A multitude of customer service options, ranging from chat to telephone

It is therefore crucial to implement a formal process for how to a) handle incidents and b) document and learn from them. This guarantees getting to know your customers and their problems. It allows to prevent those incidents from happening in the first place.  

Dedicated Customer Service Team

This ties back into the previous chapter. If you want to be excellent at customer service, you need to have dedicated specialists and teams.

Over time, they can collectively build up their knowledge about their customer’s pain points. Furthermore, it is important to constantly train your customer service teams to avoid the creation of bad habits.

AirBnB is a primary example of this concept. They have a multitude of customer service teams, which range from rental damages to fraudulent bookings. Furthermore, they have multiple contact offerings such as Email, telephone and chat.

Branding

Proper branding and marketing can help you to increase the perceived value of your offering. It furthermore allows companies to distinguish themselves from their competitors.

After all, people tend to stick to the brands and products they are used to. While branding is an ambiguous term, there are certain methods to positively influence the perception of your product (and thus retention).

Brand Separation

Clearly positioning your brand helps consumers assess if they would consider buying your products. Take, for instance, the smartphone market, which Apple and the iPhone dominated for the past decade.

Many of us have at least some level of awareness for what the company stands for. Amongst others, it’s the ease of use as well as reliable functionality. And because of those aspects, most consumers can make an educated purchasing decision.

Staying true to who you are as a company and brand exemplifies integrity. It can furthermore allow you to create customer advocates who vouch for and promote your product for free.

 Little side note: Samsung, another major smartphone producer, took the exercise of brand distinction to another level. They mocked some of Apple’s features and product changes (e.g. removal of the headphone jack) in a series of ads. Take a look at the videos below!

Customer Loyalty Programs

Loyalty programs are a type of marketing strategy that aims at rewarding customers for continuous usage of a product and/or service. For a reward system to properly function, its milestones need to be (financially) attainable.

A reward program can make existing customers happier as they are getting more from the user experience than just the product. This is critically important, especially since returning customers, on average, spend 67% more than newly acquired ones.

Take, for instance, Uber. Although its core ride hailing service is highly transactional and thus interchangeable, users are engaged to come back to use it due to their extensive reward system.

Educating Through Content

Sharing informative content with your target audience keeps your customers engaged with your products. It can also act as reaffirmation, thus keeping them in a constant and engaging loop.

Furthermore, educational content can help explain the ins and outs of your products.

Whether you choose to educate through YouTube videos, podcasts or blog posts is dependent on the message you intend to deliver.

Take, for instance, Slack’s Variety Pack podcast. It assesses modern day topics such as remote work and shows how Slack takes part in the life of the people using it.

Corporate Social Responsibility Initiatives

Some brands won’t necessarily draw in customers with their product, but through the mission they stand for.

Customers nowadays are increasingly aware about the effects of their consumption. Therefore, companies cannot put their sole focus on maximizing profits, but should look out to make the world a better place.

A great example of a mission-driven company is shoemaker TOMS. Through their One For One policy, every purchased pair is matched with a shoe donation for someone in need. As of today, the program helped to donate over 35 million pairs of shoes.

Switching Cost

If it costs your customers a fortune to switch to a competitor, it will become unlikelier that they do so.

Companies such as Salesforce utilize this to their advantage. Setting up a CRM system, depending on the level of customization, can require dollar investments in the millions. Furthermore, customers would have to find skilled labor for both implementation and maintenance.

The same concept can be applied in the consumer space. Take music streaming application Spotify as an example.

If you have been a long-time user, you have possibly downloaded a great amount of music and created many personal playlists. If you were to switch to one of Spotify’s competitors, you’d have to invest a considerable amount of time setting up and replicating your favorite content.

But beware: if the quality of your product consistently deteriorates, customers will take upon those switching cost and move on to one of your competitors.