Customer Retention: In Marketing, Measures of Customer, Recruitment

  • Post last modified:6 January 2022
  • Reading time:16 mins read

What is Customer Retention?

Customer retention is the maintenance of continuous trading relationships with customers over the long term. Customer retention is the number of customers doing business with a firm at the end of a financial year, expressed as a percentage of those who were active customers at the beginning of the year.

A successful business is fueled by the sales it obtains from its customers, so it is important for businesses to produce products and services that fit their wants and needs while providing exemplary customer service. In order for your business to grow, you have to create strategic marketing plans that focus on customer acquisition and retention tactics.


What is Retention in Marketing?

In marketing, retention refers to the actions companies take to keep their existing customers. To grow revenue, companies must either increase sales to existing customers or acquire new customers. A positive retention strategy also reduces the risk of losing customers to competitors offering better deals or lower prices.

Marketing isn’t just a way to get customers to walk through your door or visit your website it can also be used effectively to help you keep the customers you’ve worked so hard to get. To use marketing in customer retention, a number of strategies are available.

Common methods include regularly keeping in touch with your customers and offering them special deals that encourage additional purchases.

Retention Strategies

  1. Special Promotions
  2. Selling the Right Product
  3. Start a Blog
  4. Rewards Programs
  5. Use Social Media
  6. Reduce the Risk of Loss
  7. Put a Value on Customers
  8. Develop a Retention Strategy

Special Promotions

You may use email or postal mail to send promotional deals to your customers that offer them a special price. If you’ve collected information on product purchases to build a customer database, you can send your customers information about an upgrade to a product they previously purchased. You could also send them a coupon for 10 percent off of any item in your inventory on their next visit.

Selling the Right Product

Retention marketing can actually begin during the sales process. By training your salespeople to make sure they sell the product that best fits a customer’s needs instead of the one that generates the highest commissions, you’ll decrease the chances of customer dissatisfaction down the road. This strategy is an effective way to earn your customers’ trust, an important component of a long-term relationship.

Start a Blog

Include a blog on your company website to impart new information about your company or industry. Your customers will appreciate the update, and you can benefit by gleaning valuable tidbits from the reply posts that can help you in your marketing efforts.

For example, if several customers indicate that they purchased a similar product from a competitor at a lower price, you may need to revisit your pricing strategy for that item.

Rewards Programs

Airlines and hotels have done well with rewards programs that encourage repeat purchases, and you can do the same. Implement a program where your customers earn points based on an amount spent or a number of purchases and allow them to use the points to earn free merchandise. Put a time limit on the point of redemption to create a sense of urgency.

Use Social Media

Become active on social media websites like Twitter and Facebook. Not only will you get to interact with customers in an informal manner, but they can also interact with each other and develop a club-like relationship.

This strategy is especially beneficial if most of your transactions occur over the Internet and you don’t have the opportunity to meet your customers in person.

Reduce the Risk of Loss

Companies can lose business through natural waste, as well as a defection to competitors. Customers may stop buying, reduce expenditure or switch their purchasing to other products and services.

They may also be dissatisfied with the standard of service they receive. If they lose customers, companies must either face the prospect of lower revenue or incur the costs of finding new business.

Put a Value on Customers

Although any loss of business can be damaging, it is important to prioritize customer retention. By analyzing sales records, companies can identify their most important customers by the level of expenditure or frequency of purchasing.

The most important customers, known as key accounts, must be the priority for retention because any loss could seriously damage the company.

Develop a Retention Strategy

Companies must allocate budgets to retain customer loyalty. They can take informal actions to retain customers, such as offering discounts or rewards for repeat purchases, or develop a proactive retention strategy that builds customer loyalty.


Three Measures of Customer Retention

These are the three measures of customer retention given below:

  1. Raw Customer Retention Rate
  2. Sales Adjusted Retention Rate
  3. Profit Adjusted Retention Rate

Raw Customer Retention Rate

Raw customer retention rate: This is the number of customers doing business with a firm at the end of a trading period, expressed as a percentage of those who were active customers at the beginning of the period.

Sales Adjusted Retention Rate

Sales adjusted retention rate: This is the value of sales achieved from the retained customers, expressed as a percentage of the sales achieved from all customers who were active at the beginning of the period.

Profit Adjusted Retention Rate

Profit-adjusted retention rate: this is the profit earned from the retained customers, expressed as a percentage of the profit earned from all customers who were active at the beginning of the period.


Economics of Customer Retention

  1. Increasing Purchases as Tenure Grows
  2. Lower Customer Management Costs Over Time
  3. Customer Referrals
  4. Premium Prices

Increasing Purchases as Tenure Grows

Over time, customers come to know their suppliers. Providing the relationship is satisfactory, trust grows while risk and uncertainty are reduced. Therefore, customers commit more of their spending to those suppliers with whom they have a proven and satisfactory relationship.

Also, because suppliers develop deeper customer intimacy over time, they can enjoy better yields from their cross-selling efforts.

Lower Customer Management Costs Over Time

The relationship start-up costs that are incurred when a customer is acquired can be quite high. It may take several years for enough profit to be earned from the relationship to recover those acquisition costs. For example, it can take six years to recover the costs of winning a new retail bank customer.

In the B2B context, in particular, ongoing relationship maintenance costs such as selling and service costs can be low relative to the costs of winning the account. Therefore, there is a high probability that the account will become more profitable on a period-by-period basis as tenure lengthens.

These relationship maintenance costs may eventually be significantly reduced or even eliminated as the parties become closer over time. In the B2B context, once automated processes are in place, transaction costs are effectively eliminated.

Customer Referrals

Customers who willingly commit more of their purchases to a preferred supplier are generally more satisfied than customers who do not. They are therefore more likely to utter positive word-of-mouth and influence the beliefs, feelings and behaviours of others. Research shows that customers who are frequent buyers are heavier referrers.

For example, online clothing customers who have bought once refer three other people; after ten purchases they will have referred seven. In consumer electronics, the one-time customer refers four; the ten times customer refers 13.

The referred customers spend about 50 to 75 per cent of the referrer’s spending over the first three years of their relationship. However, it is also likely that newly acquired customers, freshly inspired by their experience, would be powerful word-of-mouth advocates, perhaps more than longer-term customers who are more habituated.

Premium Prices

Customers who are satisfied with their relationship may reward their suppliers by paying higher prices. This is because they get their sense of value from more than price alone. Customers in an established relationship are also likely to be less responsive to price appeals offered by competitors. These conditions mean that retained customers are generally more profitable than newly acquired customers.


Recruitment and Retention

As a small-business owner, successful recruiting and retention can be crucial to your company’s growth. Recruiting involves persuading potential employees to join your business over your competitors, resulting in increased talent and skills in your workforce.

Retention involves keeping this talent on board using a variety of ways, including increased work challenges, engagement and compensation. Employee relations within your business can positively or negatively affect your recruitment and retention efforts in multiple ways:

  1. Values
  2. Competency
  3. Appreciation
  4. Proper Training

Values

Values at work can lead to increased retention rates because employees may feel they can relate to one another. While recruiting, explain your company’s core values and those of your employees. The values you mention may include work ethic, reliability, professional responsibility and honesty.

Stating your expectations during the recruiting process can lead to better employee relations once you make your hire since expectations will be clear from the beginning.

Competency

Your employees may have a harder time functioning if each one has a vastly different competency level. By recruiting employees who have similar creativity, learning curves and potential, your retention rate might be more successful, since relations between employees with matched proficiency and skills may not be so strained. This will allow for a more productive and efficient work environment, where one or two employees are not picking up the slack for others on the team who may be performing poorly.

Appreciation

Employees who feel appreciated can positively affect relations within your company. This can affect the type of candidates you are able to recruit for new positions and the calibre of workers you retain throughout your business since employees are “most satisfied when they see support,” according to Marathon.

Appreciation for your employees can be expressed through increased pay, public acknowledgement of a job well done or increased support and the right tools to help employees do a better job.

Proper Training

Depending on the hierarchy of your business, you may have managers who lead different teams in your company. Improper management training can affect how employees view their bosses, positions and roles in your company, and this can negatively affect your retention rates. Recruitment can also be negatively affected if employees speak with potential hires about the work environment.


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