OVERVIEW

Let’s answer the question, “What is retention?”, to understand the importance of repeat visits within an overarching customer marketing strategy.

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BACKGROUND

What is retention: The goal

Customer retention is incentivizing customers to make repeat visits in order to achieve three results:

  • Increase sales: the amount customers spend when they visit
  • Increase frequency: how often customers visit
  • Increase customer satisfaction: happier customers spend more, visit more often, and bring more friends

Achieving these three results is both a sprint and a marathon. Short-term wins matter, but ultimately long-term success has to motivate every near-term decision. But given that loyal customers spend 67% more than new ones, the retention race is one businesses cannot afford to lose. The better the retention strategy, the more customers who will cross the finish line, and the higher the increases in sales, frequency, and satisfaction.

 
STRATEGY

What is retention: The psychology

Retention psychology invokes three human characteristics: incentives, effort, and results.

Incentives

Incentives provide motivation. Please excuse going full bore on this race analogy, but there’s a reason: retention works because a customer’s psyche works exactly like a runner’s. Presenting a goal provides an attainable feeling of accomplishment that motivates customers to shop more, and runners to run faster — we’re all humans after all.

The degree to which customers will shop to get that feeling of accomplishment directly correlates to the incentive restaurants and retailers communicate, e.g.:

Novelty - Be the first to know about our latest and greatest

Experience - Get invites to our exclusive events

Benefits - Receive complimentary items with your purchases

Savings - Get 20% off

Relationship - Let us cover shipping costs for you

Effort

Effort is the enemy. As customers run around the track (making purchases) with the finish line (incentive) in their sights, only one thing can stop them: Effort.

When getting an incentive requires too much effort — or the incentive isn’t worth the effort required — customers ultimately stop running. Those businesses who fail at retention are those that put too many hurdles around the track. Consider, for example, the hurdles introduced by a traditional plastic loyalty card program:

  • Forgot your customer loyalty card? Oops, you’re out of the race.
  • Have to remember to print out a coupon? Sorry, that’ll trip you up.
  • Too hard to earn the incentive? Ugh, you'll drop out and find a different race to enter.

Results

When customers do finish the race, businesses immediately capture the results of their best customers crossing the finish line:

When getting an incentive requires too much effort — or the incentive isn’t worth the effort required — customers ultimately stop running. Those businesses who fail at retention are those that put too many hurdles around the track. Consider, for example, the hurdles introduced by a traditional plastic loyalty card program:

  • + Sales: customers redeeming rewards toward incentives run faster — they spend 5%–20% percent more per purchase.
  • + Frequency: customers on the homestretch exert more energy — merchants see a 25–45% increase in visit frequency on the final two purchases leading up to a reward.
  • + Satisfaction: satisfied runners find companions — reward recipients are 200% more likely to refer a new customer on the victory lap following receipt of a reward.

To put it in the words of Fred Reichheld, the United States’ foremost expert on retention and author of The Loyalty Effect: “A 5% increase in customer retention produces a 100% increase in annual profit.”

IMPLEMENTATION

What is retention: Digging into the numbers

How can a 5% increase in retention produce such a dramatic increase in profit? Three reasons:

  • Repeat customers spend more money — first-time customers spend less because they see new brands as "risky."
  • Earning repeat visits costs less — retention marketing is 8X more cost effective than acquisition.
  • Repeat customers bring their friends — repeat customers account for 80-90% of all referrals.

Please read our blog post “Why Customer Retention Marketing” to see an Excel analysis of how retention affects a business's financials. The article walks step-by-step through the economics of coupon marketing to show precisely how a 5% increase in retention grows profits by 80%.

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ADVICE

Want to talk to someone about improving customer retention?

As you can see, companies that successfully increase retention see dramatic increases in profit. Thanx helps some of the fastest-growing restauranteurs and retailers and do just that.

Please email us if you have any more questions about improving customer retention and we’ll get right back to you. We’re happy to help you figure out how to grow your relationships with existing customers to improve sales, frequency, and satisfaction.