2022 and 2023 are crucial years for companies to establish or improve their retention management strategies.
After a time of market positivity and economic growth, we have entered a period of uncertainty in which companies and consumers are fighting rising costs with cost-cutting measures. While in times of economic prosperity the emphasis is primarily on acquisition and growth, in times of economic downturn the emphasis is more on retention. Not surprisingly, the economic downturn has made it even more difficult for companies to retain customers and achieve customer success. From marketers to customer success managers, significant efforts are being made to optimize customer retention through various measures.
Moreover, statistics have shown that retaining a customer is much cheaper than trying to sell to new customers. A report by Frederick Reichheld of Bain & Company shows that increasing customer retention by 5% can increase profits by 25% to 95%.
During an economic recession, there are good reasons why customer retention should be a priority. Due to the uncertainty in the current market, it is more important for businesses to have a stable revenue stream. Subscriptions are this stable and predictable stream of revenue. Especially in times of economic hardship, maintaining this structural revenue is vital. Even for businesses without a subscription model, such as e-commerce, customer retention is crucial. Many e-commerce businesses have low profit margins, but by taking proactive measures, such as anticipating changes and preventing churn, companies can remain healthy businesses.
We are currently facing skyrocketing inflation and consumers with smaller budgets. In addition, the pandemic has made customers more insecure and risk-averse. In other words, they crave more security. This is precisely why it is so important for companies to understand each customer's needs in the right way and communicate with them at the right time. And especially with those at risk. Well-prepared companies have embarked on data-driven approaches that provide useful insights to develop the most effective engagement strategies. Key metrics such as engagement scores, risk trends and next best actions can help companies improve retention approaches. If customers feel their needs have been taken care of, they will have better experiences. In return, companies will be more likely to retain and expand the loyal customer base.
Even though customer loyalty has become more fragile, now businesses can take the opportunity to grow, or even double the retention rates by relieving the uncertainties for customers and invest in sustainable loyalty strategies. Of course, not all churn can be prevented, as there is sometimes an unavoidable reason behind it, such as a financial one. However, influenceable churn can be mitigated. Actively approaching customers and improving their experiences during this uncertain time can significantly lower the likelihood of them switching to competitors.
By integrating a fully data-driven approach, companies get strategic insights that tell them:
By targeting customers at the right time and only with the right content, it is possible to re-engage and ultimately retain customers.
''Never let a good crisis go to waste''
The crux of this story: especially in times of economic downturn, customer loyalty and retention are crucial to businesses. Especially now it creates an opportunity for companies to differentiate themselves from competitors who do not yet have a good retention strategy. If you do not yet have a good retention strategy, now is the time to start.
In doing so, data can help you answer questions such as: Which customers are unlikely to be retained? Why not? What can we do to retain these customers? And ultimately provide these customers with the right experience that will ensure their retention.