CUSTOMER RETENTION; A KEY PILLAR IN MARKETING

Customer retention is the primary mar­keting objective

Any marketing effort spent on customers who soon jump ship is wasted. American merchant John Wanamaker once retorted: “Half the money I spend on advertising is wasted; the trouble is I don’t know which half.” This frustration was due to the never-ending need to measure the effectiveness of investment in marketing.

There can be no better measure of success of a marketing programme than customer retention. While it is hard to attract new customers, shepherding them away from competition is a much harder task.

I recently read a story whereby one of the local newspaper’s circulation is said to have fallen from over 20,000 copies daily, to a mere 8,000. This is an epic customer haemorrhage. Such a loss of customers if sustained would no doubt snap the life out of the business.

Retention is about ensuring the customers remain loyal to the company and continue to consume its products. It is not merely about retaining customers in the company’s database.

We can learn more about this by looking at how Facebook usually reports its annual financial results. The company reported revenues of KShs 2.87 trillion for the financial year ended 31st December 2016 a 54% growth and KShs 1.06 trillion net income for the same period a 177% growth.

The company further disclosed the following operational details:

1. Daily active users (DAUs) – DAUs were 1.23 billion on average for December 2016, an increase of 18% year-over-year.
2. Mobile DAUs – Mobile DAUs were 1.15 billion on average for December 2016, an increase of 23% year-over-year.

iii. Monthly active users (MAUs) – MAUs were 1.86 billion as of December 31, 2016, an increase of 17% year-over-year.

1. Mobile MAUs – Mobile MAUs were 1.74 billion as of December 31, 2016, an increase of 21% year-over-year.

The above statistics are all about retention. The key thing to note here is that the company is not obsessed with all the people who have Facebook accounts since some are dormant and others log in less frequently. It is concerned with active daily users because that is what advertisers use to make decisions on how much to spend on the social media network.

The company also tracks these statistics regularly as seen in the data above which is on a daily basis. If you run a business, you need to maintain data regarding your customers’ purchases and ensure follow through for those who drop out. Without such tracking, by the time you realize all is not well, it will be too late to do anything.

Benefits of customer retention

The first benefit of customer retention is that loyal customers tend to buy more of the company’s products. This is driven by the fact that they are less prone to switching between competitors. They are likely to buy frequently and consistently.The other benefit is that such customers are less price sensitive and are unlikely to jump to the competitor’s bandwagon just because prices have been slashed. Their loyalty is a strong buffer, which prevents infiltration by the competition.

The third benefit is that it is easier and cheaper to service repeat customers. If you visit a hotel regularly, its management will come to know what you like and how you like it. This will translate into enhanced customer experience. Loyal customers are also familiar with your goods and services. Communicating to them will be easier as they are more receptive to the message and the consumer learning process has largely taken place.

I was surprised to see how much word of mouth had contributed to brand awareness in a survey I was involved in recently. This is the fourth reason why customer retention is key. Loyal customers spread good word about the business. This ensures a wider reach without bursting the company’s coffers.

Customer retention strategies and tactics

Retaining customers is all about providing them with a reason to return. Nonetheless, we should not forget that the greatest reason to return is satisfaction. No customer will return to a business, which has not met his or her needs unless it is a monopoly. Strategies and tactics that can enhance customer retention include the following:

1. Profitability segmentation and selective attention

Businesses need to realise that ‘ all customers are equal but some are more equal than others.’ It is therefore important to segment your customers according to their contribution to your firm’s profits. Customers who contribute most require more personalised attention.

Many times, I have heard a customer complain to a company with a statement like: “I am giving you all this business and this is what I get in return?” Such customers will eventually vote with their feet. While customers may not explicitly demand special treatment, they naturally expect some attention commensurate to their patronage of the enterprise.

Profitable customers merit preferential treatment. You will find such customers can for instance have a right to a VIP parking in a shopping mall such as Sarit Centre. They can also have access to the bank’s branch manager without any need for an appointment.

2. Know customer needs and provide value

One of the most intriguing issues in marketing is the concept of value. Customers’ perception of value depends on their needs and the extent to which they have been met satisfactorily. A business that seeks to retain customers must invest heavily towards the deepest understanding of the customers’ needs.

Armed with such an understanding, product offerings should be designed to meet the needs as precisely as possible. In the case I have given above about a media house whose daily circulation has nosedived dramatically, you can see an obvious disconnect between the customer and the company. Clearly, the customer moved to consuming news, information and entertainment online while the company was left standing at the street corner with its printed newspapers.

Someone recently asked me what looked like a simplistic and rhetorical question on my social media platform. He asked me who fires the human resources manager now that we are always hearing about people being retrenched. I quickly retorted that it is the director. Immediately someone else asked me the one who fires the director. After much thought, I realised that only the customer has the power to fire everyone in a company.

This is the revelation that should be obvious to every business owner. Unfortunately, that is not the case. Satisfied customers are the only asset a business has.

3. Reason to return strategies

Even satisfied customers can leave if they can get more or less the same value elsewhere. You must give them a concrete reason to return.

A common tactic here is the customer loyalty programmes such as those provided by supermarkets, mobile phone companies and airlines. The customer earns reward points every time they consume the company’s products. They can later redeem various items using these points. For instance, airlines have frequent flyer miles programmes which can later be used to get a free ticket to a destination of choice.

Even the smallest of businesses can implement a customer loyalty programme. In that respect, I have come across some barber shops where for every nine visits, a customer gets one free service.

4. Set a value trap for your customers

I know this sounds mischievous but there is nothing wrong with it. You need to create switching barriers for as long as it does not involve anything unethical or unlawful.

One of the greatest examples of a value trap I can think of is the M-Pesa service offered by Safaricom. This is what has enabled Safaricom to retain most of its customers amidst stiff competition. As a result, Safaricom has invested heavily in its network hence offering superior quality and more value. This is another switching barrier because in as much as you may want to use the competitor’s service, there are places where their internet signal is non-existent or too weak.

5. Turn transactions into relationships

Every encounter with the customer is a chance to strengthen your relationship with them. Customers require that human touch which assures them that they are not merely viewed as cash minting machines. There are businesses where once they pocket your money, they treat you as a nuisance, should you require any after sales support.

Such businesses where your value ends with the last shilling spent cannot expect your loyalty. It is only fair to move to wherever you feel treasured and respected. Businesses need to develop an attitude of gratitude rather than one of entitlement. You do a business honour by visiting it; the business does you no honour by serving you.

Relationship marketing is a key anchor of customer retention. Technology has made it a bit easier to develop relationships since it is now much easier for instance to send a customer a birthday message.

However, customers need to feel closer to the company and such automated messages will be less effective with time. New tactics of developing deeper relationships with customers must be developed. I heard of a mobile phone company in Tanzania, which shares part of its profits with its customers by crediting cash to their mobile wallet.

Conclusion

Customer retention is the only sure foundation for business success. You need a sizable portion of customers that you can count on at all times. Loyal customers will support a business during times of crisis.

You need to actually love your customers and make them love you. Competition is getting tougher by the day. A loyal customer base is the only guarantee for business sustainability.