It is sound business sense to optimize the profitability from existing customers. You need a well-thought-out out planned approach to customer retention.

Customer retention is more than a noble pursuit. While many businesses talk about customer retention, it takes time and resources to keep and grow the value of customers. Keeping and growing the value of profitable customers is one of the primary purposes of Marketing.

Customer Retention Basics

While there are nuances to customer retention, you can still apply the basics:  first analyze, develop a plan, then execute.

1. Analyze:  Knowing your customer base is at the heart of any customer retention initiative.  To make your initial retention investments pay off, focus first on your most profitable customers.  Analyze your profitable customers and segment customers into meaningful groups.  Even the most lucrative customers don’t all buy in the same manner. Develop an RFM model (recency, frequency, monetary). Track your RFM – some customers may be of low frequency, perhaps only two purchases a year, but at a very high value. Note those who may purchase at multiple points during the year, spending a little less per experience, and then, of course, the high-frequency shoppers whose lower monthly spending still accumulates to a handsome dollar amount. Ultimately, it’s a customer’s lifetime value that counts.

What to do when customers don’t meet the profitability threshold? Explore ways to make such a customer financially viable, such as changing the service level, establishing service level tiers and pricing, or ending the life of the product so the customer needs to upgrade.

When to let go. When retaining a set of existing customers costs significantly more than acquiring a new one, it may be time to let the customer set go. What’s important to know before firing a customer is whether having them because of their name, market segment, etc., offsets the cost of serving them. The point is that you don’t want to keep spending money on customers who are taking away from the bottom line.

2. Develop Your Plan. Build a plan based on which customers, how many of them you need to retain, and the value of this retention.  Use personas to develop your strategy. Then, thoughtfully map out your strategies and associated programs for each customer segment over the next 6 to 12 months. Establish performance targets for each program.

The better you know your customers and the more relevant your “tactics” are to their lives, the greater your success. Offer them a discount on something that’s already of value to them (such as training on new services or products), or if they normally pay extra for expedited service calls or travel expenses consider discounting them or giving them a set of calls for free. Don’t just throw out a random offer; refer to what you’ve already learned to know what they will find appealing.

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3. Execute with Precision: A great plan only works if it is well executed. As part of your execution, consider all of their communication channel preferences.  Avoid confusing customers. A customer who hears about an “exclusive” program in the mail will either be baffled or irritated to see the same incentive published in the website or in the trade pub, and as a result may not act on either notice.

Be willing to test. When developing retention programs around satisfaction, loyalty, and advocacy, don’t count on an easy answer.  Understand what motivates your customers and sort your customers wisely.  Whatever program you develop, make sure it’s relevant. Be creative and innovative, but don’t lose sight of the relevance factor. 

Try different ideas with different groups, and approach your experiments like a real scientist. Make sure you always use a control group with each test. It’s not about devising a magic potion that will keep everybody satisfied, keep everybody coming back, and turn everybody into advocates. This is one of those trial-and-error tasks. Keep trying until you figure out what strategies and tactics will impact repeat purchase, lifetime value, and active endorsement.

Exceed Expectations to Retain Customers

Use this opportunity to exceed expectations. Never underestimate the power of a positive lasting impression. Not only is this a great catalyst to drive future business for but it also presents an opportunity for relevant cross-selling.

Customer care strategies require a “personal” component. For example, don’t doubt that any valued customer who is addressed as “Dear Valued Customer” will question your sincerity. If you know enough about a customer to include them in a special program, utilize your database to at least drop their name in the salutation. And don’t stop there.

Remember to thank your customers just for being customers. No matter what kind of program works – or doesn’t work – with your customers, make sure they know you appreciate their business. Be genuinely thankful for their business and demonstrate your appreciation. Send a relevant, even branded gift to first-time buyers – something that reinforces the true nature and strength of your brand. Create an appreciation program around frequency, value, and advocacy.

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