Gideon Lask at Buyapowa explains how businesses can succeed when it comes to customer retention
Like death and taxes, losing customers is one of those universal truths, it happens to every business. Retail has an average churn rate of 37%, while finance and banking have one of around 25%. Because churn directly hurts your bottom line, and the cost of retaining customers is reportedly between 5-25x less than acquiring new ones, you probably fixate on losing customers and spend a small fortune on net promoter scores (NPS) trying to find out what your customers think about your company.
You probably know your customer churn rate off the top of your head and have regular discussions with your team about how to reduce it. The reality is customers are becoming less loyal due to the proliferation of deals, websites and price comparison sites. Switching costs are constantly tumbling and, in some cases, regulators are even requiring businesses to advise their customers that their contracts will soon end and that they should look for better deals elsewhere.
Addressing the issue of churn
It’s worth bearing in mind that not all customers churn for negative reasons. Some customers are happy with what you offer but just simply no longer have any use for your product or service. One example of this might be a company that sells baby clothes whose customer’s children have now grown up, or a customer who is moving abroad and no longer needs a local phone contract. In these circumstances, ex-customers may be enlisted as brand ambassadors.
You can also win back customers who left for negative reasons, such as concerns over pricing, poor customer service, issues with the quality of products, or even with your brand ethics. Of course, where you have a genuine problem, it’s not something a press release or an ad slogan will change. The first step is fixing the root problem: improve your products and services, fix customer service issues, make your offer competitive, solve issues with your supply chain, and so on.
Once you have done all that, how do you convince ex-customers that you have changed, that they should give you another chance? Well, that is where your existing customers come into play.
Why good customer service is so essential
Price sensitivity isn’t the main culprit when it comes to losing customers in the retail and ecommerce space – it’s customer service. Poor customer service is responsible for more than 66% of retail customers switching brands; it doesn’t necessarily require a pattern of poor service, it can just be one bad experience that prompts them to leave. When retail brands suffer from poor customer service, whether that’s via their frontline staff, call centres, support channels or even unforgiving return policies, customers won’t hesitate to take their business elsewhere – and they’re not afraid to explain why online.
Another key factor is poor user experience. A good user experience provides a smooth, integrated experience across your website, mobile app, in-store, and anywhere else a customer can interact and shop with you. Ultimately, retail and ecommerce customers want convenience and the more streamlined you can make the shopping experience, the more likely they are to stick around.
And speaking of sticking around, let’s talk about loyalty programmes (or a lack thereof). Such programmes can be the difference between a strong base of brand evangelists and fickle customers who think of you and your competitors as interchangeable. Remember that 20% of your existing customers make up 80% of your future revenues, so a well-designed loyalty programme is invaluable.
Financial services sector analysis
Much like retail and ecommerce, customer service is a major contributor to customer attrition in finance and banking. It could be argued that customer support is the main thing your customers will perceive when holding an insurance policy or savings account. According to the Qualtrics banking report, customers cited poor customer service as the number one reason for leaving a provider, and 56% of those who left their provider claimed better customer service could have changed their minds.
In the financial services space, customer experience is particularly crucial for companies such as banks, insurance agencies, credit unions and credit card companies that have non-binding or short-term contracts, as there are many occasions for a customer to switch. If your website is difficult to navigate, your customer support channel is tricky to find, or you don’t have a mobile app, you are giving your customers plenty of reasons to look elsewhere.
Dissatisfaction with your products and services, including high fees, unfair contract terms, sparse branch locations and a limited product offering, is a major reason your customers often start looking elsewhere. With the proliferation of fast-growing fintechs and start-ups, often offering to do the looking and matching for your customers, switching alternatives are almost limitless. Everything from no-fee checking accounts to high-yield investment portfolios compete for your customers’ business.
How to win back former customers
When dealing with customers who have already left and swore never to come back, the good news is that brands have a 20-40% chance of winning back a lost customer, compared to a 5-20% chance of converting a new one.
After all, you’ve changed; you’ve fixed all the problems that caused them to leave in the first place, so why shouldn’t they come back, perhaps once you’ve offered them a discount for returning clients? Simply put, you’ve probably burned up all the trust you already had stored up with that person. The old “Fool me once, shame on you; fool me twice, shame on me” principle takes hold.
The key to this is to understand that if you have changed for the good, it is not enough for you to tell people that fact. They need to hear that from credible third parties, people that they know and trust, like their friends, family and colleagues. And here’s why: word-of-mouth work, its trust and credibility is central to the influencing power of referral marketing.
With a reported 92% of customers trusting recommendations from friends and family above traditional marketing channels, as well as 74% of consumers citing word-of-mouth as a critical influencer in their purchase decisions, your existing customers can help communicate the improvements your brand’s made, and help churned customers overcome barriers they may have to return.
Think about it this way: If a customer switched banks because of poor customer service, a referrer could show off your new live chat function. Or if pricing was the reason a telecom customer decided to find a new provider, a referrer can direct them to special promotions to get them to reconsider.
The reality is that your lost customers won’t listen to you, but they do trust the recommendation of their friends, family and colleagues, which is one of the major reasons that refer-a-friend programmes, when well crafted, are so effective at regaining lost customers.
Unique promotions and offers
While a recommendation from a current customer can be the key to convincing a former customer that you have changed, you still need to convince them to take action and come back to you.
This is where the rewards and incentives your programme offers come into play. These have two key functions: they convince your existing customers to recommend you to their friends and family, and they incentivise new customers – or your ex-customers – to come back.
Well-designed rewards and incentives should equip your referrers with unique promotions that aren’t available elsewhere.
Those rewards and incentives should in turn be able to incentivise conversion and also overcome the other costs associated with recommending, including the effort required and the potential social cost of a referrer being responsible for that recommendation. The incentive should be sufficiently enticing to convince the ex-customer to move from their current supplier.
To recap: just because your customers will or have churned for negative reasons, it doesn’t mean they’re gone forever, nor does it mean you’re powerless in winning them back. The first step is to uncover the reasons customers left you in the first place and, when you’ve found out why, make sure you fix these problems. You can test how effective your action has been with regular NPS surveys and other forms of customer feedback.
Once you’ve fixed the problem, your happy customers will be one of the most effective channels for communicating an effective and credible message that you’ve changed and merit being given another chance. A well-designed refer-a-friend programme could be just what’s needed to convince them to give you another shot.
Gideon Lask is the founder and CEO of Buyapowa. The company’s mission is to make acquiring new customers easy and to engage its most powerful advocates, incentivising them to get their friends and followers transacting.