The Impact of Customer Satisfaction on Customer Retention

by Natasha Ambavle |

Brands have gotten so busy implementing strategies to acquire new customers that working on customer satisfaction has taken a back seat. From a practical standpoint, customer retention is more profitable than customer acquisition. The book, Marketing Metrics, emphasizes that companies have a 60-70% chance of selling to an existing customer while the probability of selling to a new customer is only 5-20%. Even a popular study by Bain & Co. states that, “Increasing customer retention by 5% correlates with at least a 25% increase in profit.” In simple terms, you can earn more by concentrating on your existing customers than by investing more resources, time, and money in acquiring new customers.

Needless to say, customer retention is more cost-efficient, and a more bankable strategy than customer acquisition, however retaining customers is no easy feat. One of the main factors influencing retention rate is customer satisfaction. To maximize customer retention, it is imperative to understand how it works, what customer satisfaction is and its correlation with customer retention.

What is Customer Retention and Satisfaction?

Customer retention refers to the process of engaging your existing customers so that they repeat their purchase patterns and continue their association with your brand. Customer satisfaction represents how content customers are with your brand and its offerings. It is a metric used to measure how capable your products or services are of satisfying customers’ needs. If you have successfully met the expectations of your customers, you’ll see a direct impact on your customer retention rate.

What Is the Relationship between Customer Satisfaction and Retention?

Although it is not necessarily true that a satisfied customer will remain associated with the brand, it is very likely that they would be more willing to trust the brand again for their future purchases. Customer satisfaction is very subjective, but it offers a higher probability of customer retention; the former, and its correlation with the latter, depends on many factors including the product/service, customer support, price fluctuations, market situation, target group and demographic. Being satisfied is a far cry from being extremely happy with the product: it is merely the first pedestal towards impressing your customers. For example, your customer support may be excellent and achieve a good rating at the end of the month, however, most customers calling the support team complained about the poor quality of the product. In this case, the customers were satisfied with the customer service, but not so much the product itself.

Achieving optimal customer satisfaction requires excelling in all departments, along with offering exceptional service at all touchpoints throughout the buyer’s journey. Only then will customer satisfaction have a direct impact on customer retention.

Advantages of Improving Customer Satisfaction and Retention

  • Reduction in Marketing Costs – Marketing to new customers can prove to be a time-consuming and expensive affair compared with marketing to existing customers. Retained customers are already acquainted, even satisfied, with the brand, so engaging them to turn into loyal customers is a much easier and profitable feat.
  • Helps in Customer Acquisition – 92% of customers trust recommendations from friends and family; a happy customer will positively influence their network. They bring in more customers through organic word-of-mouth publicity, which has a high penetration and conversion rate.
  • Boosts Brand Loyalty – Loyal customers are the cornerstone of business success. Having the unflinching support of loyal customers is priceless. The first step towards increasing brand loyalty among your patrons is improving customer satisfaction levels. When you satisfy your customers, they are likely to return to your brand and it becomes easier to study their buying behavior to design strategies that boost brand loyalty.

Vital Strategies to Improve Customer Satisfaction and Retention

  • Listen to your Customers – Kristin Smaby explains it best in Being Human is Good Business: “When customers share their story, they’re not just sharing pain points. They’re actually teaching you how to make your product, service, and business better.” Most of the time, brands undermine customers’ opinions as chatter; only a brand that is sensitive to customers’ needs understands the true value of reviews and feedback, or more importantly, the impact it has on business growth. Customer feedback can be your gateway to achieving optimal customer satisfaction and retention
  • Calculate Churn Rate – Customer attrition is a direct reflection of your customer satisfaction level and the effectiveness of your marketing strategy. Analyzing and calculating your churn rate will help you gauge how satisfied your customers are and how many you successfully retained. It will help you understand the reason behind your customer attrition and aid in designing strategies that are more engaging and effective.
  • Analyze your Net Promoter Score – Net Promoter Score (NPS) is a marketing metric that helps to measure customer satisfaction and retention rate. It asks customers to rate you as a brand in various aspects on a scale of 0-10. The aggregate of all the customer ratings gives key insights on the company’s performance, customer satisfaction levels, the effectiveness of marketing strategies and campaigns, and helps in forecasting.
  • Value your Customers – According to New Voice Media, “Feeling unappreciated is the number one reason customers switch products and services.” Customers are sharp and observant. You can’t expect to retain customers by providing substandard service and support. Today, business is more than just monetary traction; if you do not regularly engage with your customers and build a bond, there is a minimal scope of increasing business, let alone survival. A great way to ensure customer satisfaction and improve retention is by offering them something in return for their association. You could engage them with loyalty programs or referral programs and incentivize their purchases to make them feel valued and appreciated.
  • Improve Customer Experience – Lastly, customer satisfaction is not a one-step process. Amping up your game at every touchpoint will have a considerable impact on customer satisfaction and retention. Improving overall customer service ensures happy customers that are more than willing to return to the brand, time and again, for whatever they may need.
  • Adopt Loyalty Programs – Loyalty programs can significantly impact customer retention and satisfaction. Rewarding customers builds customer loyalty and encourages repeat purchase behavior. To know more about how loyalty programs can improve customer satisfaction and retention rate, connect with Annex Cloud’s Loyalty Experience Manager.
[White Paper]
[White Paper]