The Harvard Business Review has famously reported that increasing customer retention rates by just 5% can increase profits by 25%-95%. Of course, that’s a wide range, but it underscores that minimal increases in customer retention rates can have outsized effects on profitability. HBR also reports that it’s between five and 25 times more expensive to acquire a new customer than it is to keep an existing one.
As we enter a challenging economic environment, it’s clear that businesses must focus even more on customer retention – it’s both cheaper and more profitable. That means they need to create the best customer experience possible: one that delights current customers and helps grow wallet share. But what does a great customer experience look like, and more importantly, how do CX leaders achieve it? Throughout my time as a customer experience leader, I’ve observed three behaviors that truly help CX leaders win at customer retention.
1. CX Leaders Consistently Analyze and Apply Analogous Models
CX leaders look at other industries that are seemingly very different from their own to determine what they can learn about the experiences those companies are delivering to their customers. Why is it so important for companies to use seemingly dissimilar models? Because customers do. Take this example:
On a Saturday afternoon, my wife and I went to REI to return a hat, but we didn’t have the receipt. The cashier brought up my wife's account, saw that she was a regular customer and then offered us store credit for the item. We were happy, so we used the store credit to go shopping and spent more money than had been spent in the first place for the hat. Contrast that with our next shopping experience. We drove to a mobile phone provider to get a new phone and it was the most miserable experience on the planet. I just went from a stellar experience to a terrible experience. When the phone provider sent me a text message to rate their customer service, I told them where they had gone wrong. I told them the last best experience I had was 15 minutes beforehand at REI where I experienced a welcoming and prompt solution to my problem.
That’s why it’s so important for companies to look at customer experiences in different business categories. It’s not enough for a mobile phone provider to compare themselves to a customer experience in their same vertical. They need to know they’re competing with every customer experience. Customers don’t isolate their experiences by industry. They don’t separate their car buying experience from their healthcare experience. Instead, they look at their experiences very broadly. In the experience economy, you aren’t just competing with your direct or indirect competitors, your competition is the last best experience your customer had with any company, regardless of the industry you’re in or the products you sell. That’s why it’s so important to use analogous models – and why the best in CX are already doing it today.
2. CX Leaders Have a Deep Understanding of Their Customers
CX leaders know that delivering exceptional customer experiences means meeting both their customers’ functional needs (what they need to accomplish) and their emotional needs (how the experience makes them feel). Anyone who interacts with your brand (at any level) wants to have tasks fulfilled efficiently and effectively. But today’s customers also desire an emotional connection with their brands. That’s why CX leaders seek to understand their customers’ emotional motivations and triggers, while balancing those with their functional needs. CX laggards will often focus on meeting their customers’ functional needs and miss the mark when it comes to generating an experience that makes their customers feel something.
Meeting your customers’ emotional needs far exceeds meeting functional needs when driving value. Customers will perceive more value from a brand when their emotional needs are met along with their functional needs. While they can be harder to discern, emotional needs can contain some of the most revealing information about your customers.
So, how do your customers feel when they interact with your brand? CX leaders know the answer to this question because they monitor web analytics, conduct surveys and interviews, develop Voice of Customer programs, and consistently measure and monitor whether they are meeting, exceeding, or falling short of their customer expectations. With this deep understanding, they then translate the data into action as they constantly fine tune their experiences.
3. CX Leaders Are in Constant Pursuit of Experience Differentiation
Customer expectations are rising faster than many companies’ abilities to improve their CX strategy, which can create a customer experience gap. And where there’s a gap, there’s an opportunity for competitors to capitalize on customer dissatisfaction and grab market share. CX leaders know this and so they are never content, and never stagnant.
CX leaders don’t just deploy technologies, solutions, or processes and assume their current strategy will keep working. Instead, CX leaders are always exploring how to improve the experience they are delivering. Leaders use CX as a differentiator in the market, which means they are not just doing things better, they are doing things differently. Competitive CX is built on the continuous iteration and improvement of experiences.
We can look at Disney World as an example of a company in constant pursuit of experience differentiation. From the character actors to the servers in their restaurants, Disney World has always espoused a policy to make every guest feel like a VIP, but they don’t stop there. They’ve also been smart about how they add technology to improve the customer experience with innovations like Magic Bands. They even made a move recently that surprised many by reducing capacity by 20% during peak holiday periods to prioritize the guest experience. Not surprisingly, that bet paid off as evidenced by significant revenue growth in the quarter following the capacity reduction.
Right now, as companies brace for the possibility of a recession, they’re looking to customer retention as a way to maintain current revenue streams. The truth is that customer retention should be a focus all the time. CX leaders know this, and that’s why they’ll be ready to weather this storm of economic uncertainty and come out ahead.