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Retention, the key to business growth?

When trying to grow your business how much emphasis should be placed on customer retention?

This is a genuine question and an area I have been recently focusing on as I manage the new social media strategy for Kevin Sprecher Golf LLC.

I remember listening to a clip from Gary Vaynerchuk talking about the importance of not abandoning those followers who engage with your content regularly in your bid to go “viral.

Most businesses seek that viral video that gets millions of views, thousands of likes, comments, and interactions. In order to get this level of exposure often a business must increase its reach to those who don’t currently follow their page.


In this instance it’s important to not neglect those that already follow and support your page. These are the followers who like, comment, share and save your posts regularly and engage with you. It’s important to not take these types of followers for granted as in many ways they hold the key to that viral video that many businesses crave.

For some reason when I think of the topic of customer retention, it reminds of the days where everyone rang up Sky asking for a crazy deal, and they threaten to switch providers. This was as a result of hearing from a friend that sky gave them a fantastic deal to stay with the provider once their contract was up. The customer was often able to secure a new deal with better features at a much lower cost. I should know, my dad was a regular user of this. Although the caller felt they had just outsmarted a large corporation what was happening was the business was focusing on growth and as a result adopted an aggressive approach to customer retention. Obviously, the competitive landscape had a large part to play in this as a variety of highly backed competitors such as Virgin Media starting to come onto the scene around this time. However, Sky was able to achieve significant growth through effective acquisition of new customers combined with a high level of customer retention.

I’m not a huge fan of retaining customers through discounts as I feel this is a short-term fix. The strategy used to retain customers must extend beyond simply offering better prices, instead provide long term value! It makes me wonder how many companies are desperately trying to grow through aggressive targeted marketing campaigns but are ignoring their current base of customers.

1. Social Media Growth


A basic element of social media platforms such as Instagram is the more people who like, comment, share and save your video, the more people will see it. I have found that videos that have performed extremely well for us have had a much higher than average number of saves and comments.


But a question I also ask myself is outside of Instagram (the company) who else has the power to control how many people see the post?

It’s the followers themselves, the people who when they open their feed your video is automatically there and ready for viewing. These people can watch the video, like, comment, share and save the post. Showing Instagram that the video is enjoyable and something they like to watch. Thereby Instagram begin sharing it with other users through FYP, explore pages etc. I am not going to delve too much into the algorithms of social media platforms purely because I don’t know enough about them yet! But the main point here is that those loyal followers who regularly comment, like and save your posts have the power to determine if your video will be successful or not.

Therefore, it’s key that these customers or followers are not neglected and continue to receive the high level of interaction/service.


How is this achieved? This can be as simple as replying to their messages and comments, interacting with them through functions such as Instagram story: polls, Q&As etc. or tailoring some content towards them personally. Continue to deliver what you have done that has gotten them to be interactive with your page in the first place.

Long story short - Don’t neglect these followers in a bid to pursue new ones.

In order to grow any base of customer or followers you need to combine a low churn rate with a high level of customer acquisition. Therefore, making sure your follower base is satisfied with your content is key to tapping into this new group of followers.


Let’s look at this from the perspective of a small business operating out of a physical store.

2. Small business that specializes in selling clothing

I’m currently reading a book called ‘The Lean Startup’ and a line in the book I found very interesting was “Loyal customers often do the lion share of marketing”. This is referring to word of mouth marketing that a customer will undertake if they like a particular product or service. It involves awareness of the product spreading rapidly from person to person. Often, when a customer helps with marketing then it’s unintentional, with growth a natural development due to customers using and enjoying the product/service.


I have personally seen this in action here at Kevin Sprecher Golf as Kevin has built up a strong reputation through providing a high level of golf instruction. The majority of customers who request golf lessons/fittings heard about it through a friend or mutual acquaintance.

In this instance its important the business maintains a good relationship with these customers to maximize the positive impact of word-of-mouth marketing. Simple terms: How many friends can a current customer introduce to the business organically.


Let’s say for example a small clothing store located on the high street has been successfully serving the local area for twenty years and has a close-knit relationship with its loyal customer base. The business often invited feedback from consumers on products they sell and use their feedback within their buying process to merchandise the shop effectively.

These local customers are integral to the business, but the company wants to expand its presence on the other side of town. The management team has relocated to the new site to fit out the new store.

However, as a result the quality of service provided to customers within the first store has greatly reduced as focus has shifted towards opening a new store. Feedback is no longer requested from customers and the sense of community has diminished from the store as they seek to prioritize growth in a new area of town.

Customers who felt they received a high level of customer service before are now growing frustrated as there has been a clear drop in standards. Slowly they become disengaged from the business and no longer shop or call by as frequently. Instead, they shop at another local store which has recently started to focus more on quality customer service.

Sales have slowly dipped in the store as customers felt dissatisfied with the drop in standards, however, the management team are delighted with the launch of the new store as they gained more customers than anticipated.


However, can this be categorized as actual growth for the business? I’m going to use the data that Eric Ries used in the book to demonstrate this point.


The new store has generated a growth rate of 39% of new customers; however, the retention rate of the other store had dropped dramatically to 61%. This leads to a compounding growth rate of 0.02 percent. Almost zero! All the capital that was invested in the new store has in many ways been a waste as the company has not achieved any actual growth in new customers. As a result of neglecting those loyal customers from the first store, the reduction in repeat customers/purchases offset all the positive work achieved through the new store.

The reduction in retention rate is also a signal that the company will lose its edge on word-of-mouth marketing from those customers that previously felt passionate about the product and service.

This demonstrates the importance of customer retention in achieving growth.

Both in reference to growing your followers and customer base the business must ensure that sufficient time and resources is invested in maintaining the strong relationship with loyal customers. Don’t let the objective of growth override the goal of providing high value to your current customers and followers.

This also relates a lot to “Vanity metrics” which Eric also highlights in the book. Importance of the business not getting tied up in metrics that aren’t telling the full story. I will explore this in more depth in a post in the coming weeks.

The business could have experienced more growth through maintaining their high retention rate and combining this with their increase in customer acquisition. But how can this be achieved? Potentially through hiring an external company to look after the shop fittings with management onsite for a few hours per week. This would allow management to maintain their presence in the original store and ensure that the high quality of service remained consistent through the new launch.

What other ways can the business maintain strong customer retention alongside increasing customer acquisition.


Feel free to leave your thoughts below!

Thanks,

Michael


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