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The Harvard Business report from 2014 about Customer Lifetime Value shows that acquiring a new customer is anywhere from five to 25 times more expensive than retaining an existing one.
It is not a secret that nurturing existing customers is important to the long-term financial success of a company. It costs considerably less to keep an existing customer than to acquire a new one.
London School of Economics research shows that companies with a very good customer reputation grow four times more swiftly than other companies.
Customer Retention methods are quite useful to keep your existing clients and get new ones by the way. The research from Frederick Reichheld (Bain & Company) shows increasing customer retention rates by 5% increases profits by 25% to 95%. Businesses can cut their costs by building loyal relationships with customers and other stakeholders.
Across the wide range of businesses, customers generate increasing profit each year they stay with the company.
How do loyal relationships translate into cost savings? First, consider the cost of serving a long-standing customer versus the cost of courting one. But the one long standing customer brings much more benefit:
A return customer tends to buy more from a company over time and brings more income to the business. The operating costs to serve them decline (Administration, delivery, orders, customer service,…) and they’ll often pay a premium to continue to do business with you rather than switch to a competitor with whom they’re neither familiar nor comfortable. After a number of good experiences, the customer will refer others to your company which decrease your number of new customers.
In the best case, the company keeps their current customers and get new ones by word of mouth and recommendations. The process begins again, the new customers become return customers and so on. This is how to grow the customer number.
word of mouth
New Zealand research shows that when people have a great customer experience:
  • 80% tell on average nine other people
  • More than one-third give you more business
  • 55% recommend you
Find out, how to create customer experience so good it inspires people to tell others, which will bring in new customers. In essence this is free advertising.
In real life, not every customer has potential to be profitable and long-standing. Cost-effectiveness dictates that you segment clients to identify the subset that holds this potential, so you can target your investment in relationship-building. Your existing customer base is a gold mine of not just sales opportunities, but goodwill and free promotion as well. Plus, having lots of happy customers makes your job much easier!
The secrets of the loyalty leaders (by Bain & Company, Inc):
  • Modify customer-acquisition incentives:
Reward your sales teams and marketing channels for acquiring customers that stick. Consider commission or bonus reductions if customers defect before 18 months.
  • Reallocate marketing Investments:
Systematically rank all of your customer acquisition campaigns on the basis of their yield of loyal customers. Shift resources towards programs that attract the richest mix of loyal customers. (Many firms today are wasting half their marketing expenses on disloyal customers who will never stick around long enough to pay back the acquisition investment.)
  • Identify ways to help underperformers:
Develop annual relationship report cards on suppliers and dealers (and customers and employees) with as much care as you give to annual reports for investors. Test a 360-degree feedback system, starting with senior managers and rolling out to all employees.
  • Use the internet:
Loyalty leaders have shifted almost half of their customer transactions to the Web. Make sure your Web site is so simple to use that many customers will prefer this faster and cheaper alternative. No company is immune to the pressures of the market. But companies that focus on building loyal relationships that by their very nature keep costs to a minimum are far better positioned to remain strong in the face of market turbulence.

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