Many factors make companies successful, but none more than customer retention. Customer loyalty is highly sought after but often elusive. And when economic times are uncertain, like during a recession, customer retention strategies can be the difference between success and failure.
Brand-loyal customers may not be as loyal as you think. According to Statista, 50% of consumers anticipate switching brands during recessions, with another 37% reducing product usage.
To further complicate matters, brand loyalty varies by industry.
Brands already have a difficult job trying to retain customers, so what can brands do during a recession?
What Is Customer Retention?
Customer retention is the practice of keeping existing customers loyal to a business – repeating orders and becoming brand advocates.
It’s an important focus for every company, but it is essential during times of economic downturn. During a recession, businesses may see a decrease in consumer spending, making it more difficult to acquire new customers. Retaining customers can offset new customer acquisition and keep a business afloat.
Why Is Customer Retention Important?
Customer retention measures how successful a company is at satisfying existing customers – it can be used to predict customer satisfaction, customer engagement, and emotional ties to the brand.
During a downturn economy or a recession, retaining customer loyalty is key to a company’s success – especially for companies in industries that are highly competitive like cosmetics, luxury goods, and apparel.
The following stats from SEMRush show the importance of customer retention:
- The probability of selling to an existing customer is between 60% and 70%.
- The probability of selling to a new customer is only between 5% to 20%.
- Existing customers are 50% more likely to try your business’s new product.
- Existing customers are also 31% more likely to spend more on their average order value with your business.
With such staggering statistics, customer retention should be a top priority for all businesses, regardless of the economic state.
What Is a Good Customer Retention Rate?
Retaining customers can be measured and should be reported on. The formula is simple. For example, if you wanted to calculate your Customer Retention Rate (CRR) for 2022 you need three numbers: the number of clients at the start of 2022 (S), at the end (E) of 2022, and customers acquired in 2022 (N).
- CRR = ((E-N)/S)x100
For example, if you had 1,000 customers at the start of 2022, acquired 300 new clients, and lost 150, then you ended 2022 with 1,150 customers, and your retention rate is 85%.
It looks like this:
- CRR = ((1,150-300)/1000)x100 = 85%
A retention rate over 85% is considered good, but companies should strive to hit the highest retention rate possible.
Customer Retention Metrics That Matter
CRR isn’t the only metric that matters though. It’s the top one to be reported on, however, there are other customer retention metrics that you should consider reviewing.
- Repeat purchase ratio (RPR) – This simple formula is the percentage of customers that have returned to buy again. It’s a great indicator of customer loyalty.
- Customer satisfaction score (CSAT) – Although gathering CSAT data may be more cumbersome, it provides a lot of insight into customer satisfaction. CSAT is based on customer feedback and an easy way to garner this data is by sending out customer satisfaction surveys. These brief surveys can help pinpoint areas in that you excel and areas that need to be reviewed – like customer satisfaction with shipping times.
- Customer lifetime value (CLTV) – CLTV measures revenue generated by a single customer. It should be analyzed frequently especially since product prices may change especially during a recession. It’s a great metric to use and can help you upsell loyal customers.
- Customer churn – This metric measures the rate customers stop purchasing from you. If your churn rate is greater than 7% it might be time to evaluate why your customers aren’t happy.
What Are Some Customer Retention Strategy Options to use During a Recession?
There are many strategies to improve customer retention. Some strategies significantly impact retention rates while costing the company little, while others may take more of an investment.
Ways to Retain Customers
Excellent Customer Service
Loyal customers feel valued and appreciated. Make sure that your customer service team provides top-notch customer service and has the technology in place to handle customer inquiries and complaints efficiently. Your customers need to have access to your CS teams at their convenience – whether it’s on social media, your website, or on the phone. You need to be where your customers are and respond promptly.
When customers have concerns or complaints, address them promptly and effectively. This can involve providing a resolution, such as a refund or replacement product, or simply explaining the situation and apologizing for any inconvenience. By addressing concerns promptly, you can show your customers that you value their business and are willing to go the extra mile to keep them happy.
Offer High-Quality Products & Services
Customers love getting value for their money. If you provide high-quality items for fair prices, you can easily retain customers and build loyalty. This includes regularly updating and improving your products and services, as well as offering a wide range of options to meet the diverse needs of your customer base.
Build Strong Relationships Through Personalization & Loyalty
Strong relationships with customers can go a long way in improving retention. Consider offering personalized experiences and communicating with your customers regularly to build trust and strengthen the bond between your business and your customers. This can include sending personalized emails or reaching out to customers after a purchase to thank them and see if they have any questions or concerns.
A customer retention strategy example would be the ability to build rapport and empathy can build strong relationships.
Consider offering loyalty programs or other incentives to encourage customers to continue doing business with you. This can be as simple as offering discounts or special promotions to loyal customers or creating a tiered loyalty program with increasingly valuable rewards for customers who make more purchases.
Use Data to Your Advantage
By analyzing customer data, you can better understand your customers’ needs and preferences. Use this information to tailor your products and services to better meet your customers’ needs, which can increase retention. This can include segmenting your customer base and targeting specific groups with personalized marketing messages and offers. Customer retention skills that can help to effectively analyze and use customer data include data analysis skills, the ability to interpret and communicate data insights, and the ability to use data to inform decision-making.
If you use a 3PL like AMS Fulfillment, leverage their Warehouse Management System (WMS) data to analyze your SKUs and what is selling and what is not. By reducing the slow SKUs, you can focus on the most popular items.
Net Promoter Score
One of the best ways to improve retention is to ask your customers for their feedback and then use that feedback to make changes and improvements to your products and services. This can include setting up a system for collecting customer feedback, such as a survey or review platform, and then using that feedback to make changes that will benefit your customers.
Offer a Hassle-Free Return Policy
Customers are more likely to make repeat purchases if they know that they can easily return items that don’t meet their expectations. Consider offering a generous and easy-to-use return policy to encourage customers to shop with confidence.
Be Flexible With Payment Options
During a recession, customers may be more hesitant to make large purchases or may have limited budgets. Consider offering flexible payment options, such as layaway or financing, to help customers afford your products and services. This can make it easier for customers to make purchases and can help to increase retention.
Communicate With Your Customers
It’s important to keep your customers informed about any changes or challenges your business is facing, especially during a recession. This can help to build trust and ensure that customers feel valued and appreciated. Consider using email or social media to keep customers up-to-date on any changes to your products, services, or policies.
Offer Additional Value
One way to retain customers during a recession is to offer additional value beyond your core products or services. This can include offering free resources or educational materials, providing personalized recommendations or advice, or offering discounts or promotions to loyal customers.
Stay Competitive
Even during a recession, it’s important to stay competitive with other businesses in your industry. This can involve keeping up with industry trends and innovations and offering competitive pricing and promotions. You can ensure that customers see your business as a top choice by staying competitive.
Improving customer retention is important for any business, but it is especially critical during times of economic downturn. By implementing the abovementioned strategies, businesses can help keep their customers loyal and come back for more, even during a recession.
Contact Us at AMS Fulfillment to see how we can help implement customer retention strategies for your business.
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