Customer retention is incredibly important for growing a sustainable business, but before we look at some strategies for improving it, let's put an important data point front and center:
According to the Harvard Business School, increasing customer retention rates by 5 percent increases profits by 25 percent to 95 percent.
This is important to consider when evaluating your own customer loyalty strategies because in the customer service echo-chamber there is a lot of "hoo rah" about taking care of customers, but little discussion on the business side of things.
At Help Scout, we do things differently; we're all about loving customers, but we also aim to prove that great service is more than just the right thing to do—it's also good business sense.
In order to help you increase your own retention rates, we've compiled a list of our 15 favorite tips (backed by academic research and case studies) on increasing customer loyalty, divided into five easy-to-browse sections.
The quickest way to get customers to ignore you is to not stand for anything. A study by the Corporate Executive Board that included 7,000 consumers from across the U.S. found that of those consumers who said they had a strong relationship with a brand, 64 percent cited shared values as the primary reason. If you want loyal customers, you need them to care about you ... so what do YOU stand for?
While negative social proof ("Nearly 90 percent of websites don't use heat mapping software!") has been proven to dissuade customers rather than encourage them, numerous studies on customer motivation have shown that positive social proof ("Join 20,000 of your peers!") is often the most effective strategy for getting people to listen.
Despite what we often say, most people like things that resemble them in some way. This cognitive bias is called implicit egotism, and is an important thing to keep in mind when communicating with customers. In order to attract the sort of customers you want, you need to identify your target customers down to the last detail and then craft a brand message that perfectly matches their pains, goals and aspirations. It's easier to fill this existing demand than to create one.
Not all words are created equal. Certain persuasive words encourage customers to buy more than others, in particular: free, new and instantly. When customers hear these words (and the promises they imply are backed up), they'll enjoy their purchases more than they would have otherwise.
All businesses, no matter the industry, are going to have to sell to the three types of buyers that are out there. According to neuroeconomics experts, nearly a quarter of these buyers will be conservative spenders, or "tightwad" customers. George Lowenstein of Carnegie Mellon University recommends using bundles, reassuring words (e.g., change "a $5 fee" to "a small $5 fee") and reframing as strategies to better sell to these conservative buyers. Read more about his advice here.
Giving back to customers can appear incredibly costly, but it doesn't have to be. Instead, embrace the art of the frugal wow by understanding that reciprocity is built even with small gestures. In fact, psychologist Norbert Schwarz found that as little as 10 cents can create reciprocity between two individuals (it really is the thought that counts!).
Although reciprocity works incredibly well on it's own, research shows that it is even *more* powerful when started by surprise. For a simple example, recall a time that someone did something nice for you unexpectedly; the gesture probably wasn't all that unusual, but the fact that it came out of nowhere left a strong impression on you.
In a study from the Journal of Applied Social Psychology, researchers found that waiters could increase their tips by 23 percent by the simple act of returning to tables with a second set of mints. So do mints have magic powers? Apparently not: The researchers concluded that the mints created the feeling of a personalized experience among the customers who received them. So it was the personalized service received that made them enjoy their experience so much more.
When it comes to customer service that keeps people coming back, the research shows that quality matters more than speed. According to a study by the Gallup Group, customers were nine times more likely to be engaged with a brand when they evaluated the service as "courteous, willing, and helpful," versus the "speedy" evaluation, which only made customers six times more likely to be engaged.
Telling your employees to spend more time with customers might seem like folly, but smart entrepreneurs know that isn't the case. Numerous behavioral psychology studies have shown that everybody views their service experience as more positive when they don't feel rushed or ignored. Don't spend time idly, though; have employees attempt to find out key customer traits, just like Derek Sivers did with his employees at CD Baby.
The best way to improve your online customer service efforts is to utilize the channel your customers most prefer. Although recent research has shown that a majority of people still prefer and use email more than other services (including social networking), you need to pick the channel that makes the most sense for your business. Hosting companies know that online chats are critical when their customers’ sites go down, but other businesses may have customers who are just fine using email as their primary method of contact.
Countless case studies have made one thing clear when it comes to creating an efficient support system: You need to keep everybody in the loop. At Help Scout, we use tools like Campfire to access real-time notifications of what's happening on the customer end; we were able to improve our response time by 340 percent by enabling a support room that all employees can access. Read more about how we did it.
Consumer researchers Joseph Nunes and Xavier Dreze are known for their studies on The Endowed Progress Effect. Their results have conclusively shown that the biggest wall that prevents customer loyalty programs from sticking is getting people started. They've shown through their notorious "car wash study" that people are twice as likely to finish loyalty cards if they are automatically started (or rewarded) as soon as they sign up. Read more about this process here.
Additional research by Nunes on loyalty programs has shown that people just love being VIPs or gold members of programs. There is one caveat, though. This only works when people know there is a class below them on the totem pole. Speaking to human nature, Nunes saw a notable increase in gold members’ participation as soon as he implemented a lesser silver class.
A research study on voting patterns conducted by Stanford University conclusively showed that people are more likely to participate in something if they are labeled with a positive trait. Our friends at Buffer refer to their premium customers as "awesome" members, and even label their upgraded payment plan as the "Awesome Plan"—a much easier phrase to embrace than "paid member."
Join 60,360 subscribers and get an original essay twice a week.