How to retain customers?

The 3 things you have to do for high customer retention

Are you also a service provider at heart, and do you value customer loyalty more than the average? Then you probably know the feeling of losing a customer. To make sure that this happens less often in the future, I took a look at what creates good customer retention.

Customer retention is when customers make repeat purchases after their first purchase of a product or service. The factors influencing this decision include the quality of the service, price, availability of alternatives and customer expectations.

Let’s go on step by step and first look at how you can retain your customers and then how you can put this into practice.

Types of customer loyalty

Depending on which website you find on the subject, the types are named and classified very differently. Basically, you can distinguish two directions – the psychological and the factual binding of customers.

Psychological customer retention

The psychological bond comes from the customer. Ultimately, it is your customer’s decision to come back and buy again. There are the following subtypes of this form of retention:

  • through trust
  • through satisfaction (subjectively perceived quality)
  • through social pressure (“Te members of our association/club buy from this baker.”)
  • through emotional barriers to switching (= habit)

Factual customer binding

The factual customer bond comes from the provider. It means the measures that a company can take in the areas of contract and service design. There are the following subspecies:

  • legal binding through contract design (e.g. minimum terms, contractual penalties, switching costs, etc.)
  • economic commitment through incentives (e.g. discounts, bonus program, loyalty points, etc.)
  • functional binding through characteristics of performance (e.g. higher comfort than competitors, unique performance)
  • situational customer retention through monopoly position (e.g. selling popcorn in the cinema)

Successfully retain customers

I believe that loyalty by your buyers is characterized by the fact that I, as a provider, make use of my opportunities without tying the customer to a service that he does not want. Or put differently:

Even as a monopolist, it helps if the customer trusts me and is satisfied with my performance. Because the day will come when I won’t have a monopoly anymore.

Customer loyalty vs. customer retention

Let’s look briefly at these two terms or perspectives. They are almost always mentioned in the same breath. They more or less correspond to the previous categories of psychological and factual binding.

Customer loyalty comes from the customer and means the (emotional) willingness to buy again at the same company, although the price may be higher than that of the competition.

Customer retention is more of a generic term and includes customer loyalty (“retaining through loyalty”). However, the term is often used exclusively for measures taken by providers that are more of a “technical” character.

In this case, customer retention is the (somewhat forced) „loyalty“ through contract design, creation of incentives (e.g. through discounts) and lock-in effects and is not based on voluntary choice to the same degree as actual loyalty. So it’s not as strong.

Long-term vs. short-term

In the short term, as an entrepreneur, I will not be able to avoid choosing a few of these tools that could also be designed to the detriment of the customer. A minimum contract term is a classic here.

The “trick” is to give the customer what he expects (a bit more, if you like). Because if he is satisfied, the “hard” binding tools will not feel as such in the long term.

customer loyalty vs. customer‘s trust
customer loyalty vs. customer‘s trust

Apple also “requires” me to commit. The music, the emails, the work in Numbers and Pages… It’s a cosmos in which everything is very neatly connected. I no longer look at what other apps exist, because I’m happy.

I am a well-fed slave of the system (or sheeple, as it is called in today’s enlightened circles 😂).

Action steps for customer retention

Before I start philosophizing about the measures, I would like to emphasize once again how important customer satisfaction is!

I also found a useful study on this. It examined the factors that ensure customer loyalty. The focus was on online trading, but I’ll lean far out the window and claim: “It’s the same everywhere!”. In the picture, I have simplified the results.

factors influencing customer retention
factors influencing customer retention

If we follow the study and the up-front-considerations, then our actions to get to customer loyalty must focus on customer satisfaction. It is by far the most important factor. And how do we do that?

1. Exceed expectations

Start surprising your customers positively. A small gimmick or a sample pack in the delivery or in the store create this effect.

Finish a day or a week before the deadline. Work out one more offer than agreed. Include an additional service in your result or delivery that was not previously agreed upon.

You have countless options.

2. Clear communication

The second factor in the study was trust. The easiest way to get there is to act with integrity. To put it in a nutshell, in the words of Fredmund Malik:

“[Being integer means] mean what you say and act on it”

Fredmund Malik in “Managing, Performing, Living”

Tell your customer what is included in the service and what is not. Point out common misconceptions. Mention the circumstances under which you will take back the goods or refund the price.

Ask yourself what you would want to know if you bought the same service.

3. Show commitment

That, too, is actually easy if you listen to your “service provider heart”. Think about what you can do for your regular customers. This can be:

– birthday cards

– small INDIVIDUAL gifts

– exclusive offers

– discount promotions

– recommend a cooperation partner with special conditions

– information evenings

– raffle

This list can also be extended a good deal with a little creativity.

I think the most important thing is to have an offer that is only for the regular customers and does not immediately target repeat business.

Customer retention practice vs. textbook

I hope you were able to take something away from the types of customer loyalty at the beginning. The theory is definitely useful at this point and, in my opinion, shows the playing field.

The study and also my “practical gut feeling” show that in real life it is not about minute contract details or one percent more discount than the competition. It is much more important to fundamentally satisfy your customers and to earn their trust.

How you can systematically and continuously bind your customers to your brand is of course a strategic question. Because not all tools will be useful. Discounts for a premium provider do not fit. If you don’t already have a strategy, then you should start with one. Anything else can result in you retaining the wrong customers or none at all…

I hope the article helps you. If you use other customer retention tools or have a good idea you’d like to share, feel free to use the comments so everyone will benefit.

If you would like to continue reading on a topic-related basis, I recommend our article “How Can I Expand My Solo Business?”.

You don’t have quite that much time? Then you could also continue here: “How Can I Promote My Small Business – The 2 First Principles You Should Never Ignore”.

If you want to take care of your strategy, then continue here – “Why is business strategy important?”.

Stay focused, lean and keen and always remember: “There’s more to life than just work.”

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