When the going gets tough, look to your most loyal customers

By Patrick Headley, Group Chief Executive, Go Inspire Group.

Even at the best of times, managing customer churn and cultivating a loyal customer base is a crucial aspect of successfully running any business. Now, amidst widespread panic-buying for basic amenities, the disparity between low churn and high churn sectors becomes more apparent than ever before. To simplify, low churn sectors tend to provide essential products or services where consumers have one exclusive relationship with a single supplier, while higher churn sectors are those where consumers tend to have multiple suppliers – think restaurants and clothing, for example.

While supermarkets, mobile phone and broadband providers are unlikely to feel the boat rock when things take a turn for the worst, many other non-essential industries can certainly expect some disruption and decline in purchases, as well as the need to grapple with largely online purchasing – at least for a period. In all sectors alike, the key to navigating customer satisfaction and retention is to foster a deep understanding of the customer base at hand and the underlying reasons for customer retention or lack thereof. In this article, we break down three effective churn management strategies which can help non-food retail businesses overcome this challenging period.

On average it costs six times more to acquire a new customer than to get further business from an existing customer¹ – so focusing on customer retention is by far more cost-effective. While customer churn may be highest in the non-essential second tier, with these sectors experiencing an overall customer churn rate in the 30-40% range, return on investment in churn management will naturally also produce a higher return than for lower churn industries. Customer loyalty is a hard thing to achieve in any sector- but it’s perhaps the hardest in the retail sector. With that being said, our research suggests that even sectors expected to demonstrate stable churn rates have shown more volatility in recent times, suggesting that all businesses could do well to revisit their churn management strategy. So how should retail businesses approach churn management?

Loyalty programs over introductory incentives

Still today, many marketing strategies focus too heavily on attracting new customers through introductory incentives. Yet, oftentimes these new customers will leave shortly after redeeming the offer. Smart marketers have understood the importance of instead rewarding the most loyal and valuable customers in order to keep them on board and continuing to make more frequent purchases. This is the nucleus of an effective churn management strategy: loyalty programs which nurture existing clients will have the most positive contribution to long-term business. While this approach may require more intelligence and expertise to put into place, it will deliver greater and more sustainable results than blanket introductory offers.

Mapping out the customer journey

In a second instance, such loyalty programs provide businesses with the database to analyse and understand consumer behaviours and, using these insights, better adapt future strategies to the customer’s needs and expectations. Similarly, collected data can be used to identify customers on the brink of the high-loyal and high-value category and encourage them to climb the loyalty ladder. By analysing purchasing behaviours as consumers travel through the various stages of customer loyalty that buyers tend to go through before reaching the loyalty summit, businesses can compile a typical profile of consumers who are more inclined to occupy this category. In simple terms, loyalty programs coupled with data analysis supply businesses with the crucial information to peg down potential high-value high-loyal consumers and concentrate efforts where it is most likely to be effective.

Tying performance metrics to strategy

Finally, by regularly monitoring businesses metrics, companies can assess the effectiveness of their churn management strategies. For instance, if existing customers are not behaving in the way that was expected of them based on the determined typical customer journey, businesses may need to consider revising their current efforts. Similarly, if results exceed expectations, this is a cue for marketers to magnify or expand the strategies delivering such positive results. Furthermore, experiments can be carried out to test different variables and identify where optimisation is possible, if need be. Effectiveness will need to be assessed on a case by case basis – with each marketing campaign being tracked with a view to assessing the incremental revenue gained. This will be the only true measure of a commercial uplift. 

While gaining new customers has its own value, the importance of keeping existing customers happy and engaged is of utmost importance, particularly during times of economic disruption or standstill. Companies will always have some customer churn, however, there are effective strategies that can be deployed to minimize churn rates. In particular, smart approaches will use data analysis to pinpoint a low-value low-loyal customer who matches the profile of a potential high-value high-loyal one and focus efforts there. In essence, smart churn management involves rewarding the most loyal customers while using intelligent data extraction and analysis to identify high-profit futures. A strong reward system will ensure that the ‘right’ customers hang around even when things get rocky. 

¹Pwc, Customer retention, accessed 24th March 2020: https://www.pwc.co.uk/services/consulting/technology/customer-technology/customer-retention-strategy.html

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