Recessions, like storms, don’t give much warning and they won’t wait until you brace yourself. Recessions ravage businesses and lead them to hit a wall and in such times extraordinary measures are required. You will be pressed to act promptly, anxious about the potential impact on your company and terrified about uncertain times ahead. Hence most businesses instinctively enter into a fight, flight or freeze mode. But that’s not necessarily the right thing to do. During a time of economic uncertainty, experts stress the importance of customer retention because customers’ spending budget decreases and they become much more sensitive to price. In order to get through a market downturn, it’s critically important to be laser focused on the “certain” aspects of your business and this is your existing customer base.
Customers are the bedrock of your company and during an economic slump, your main focus should be to keep them loyal to your brand. Based on a Deloitte survey of 1000 CFOs, 3 of the 4 top strategies to impede a recession were customer-oriented. If you can improve your customer retention by just 5%, it can increase your gross margins by 25-95%. Drawing on a research by Harvard and Deloitte, customer retention strategies are a proven measure used by top companies like Samsung and Honeywell to successfully ride the waves of a downturn.
Importance of customer retention during recession
During a recession, your existing customers call the shots, so, your time should be best invested in strengthening and preserving these relationships. Customer retention is predominantly about assessing what customers prefer, don’t prefer and any difference they expect you to make during their life cycle. Long-standing customers who have had an unforgettable customer journey experience are far more likely to return and spend their money on your brand. Repeat purchases from existing customers equal repeat profits at a zero acquisition cost. Existing customers also refer new customers to your brand, write reviews and share positive experiences on social media. A well thought out and strategic loyalty program will help you establish trust and confidence by rewarding these customers for all the great things they do for your brand. It’s not just about transactions, it’s about establishing a trusted and ongoing relationship brands have with customers.
In order to have an effective customer retention strategy in place, you must consider these key factors:
Customer retention best practices that 2008 taught us
During an economic crisis, what matters more is not only how well you plan, but how well you pivot. The Great Recession of 2008 brought the global economy to the brink and reshaped the market dynamics. Twelve years after the last economic crisis, leaders around the world have rebounded, rebuilt and, in many cases, made remarkable strides toward a brighter, more profitable future. Since 2008, a substantial amount of healing has taken place but there are some key lessons that we can reflect upon and in some cases, employ a new playbook in an effort to mitigate risk:
Did you know 74% of customers choose a brand based on a strong loyalty program? Loyalty programs have gained importance and popularity over the years and are not reserved for power players anymore. Loyalty programs once existed only to reward customers for spending a certain amount at a store, today they are rewarded for a variety of desired actions! So, what’s an ideal loyalty program? One that makes sign up easy and simple, is tempting enough for customers to want it and one that’s fun and not overbearing (one great way to make loyalty programs fun is through gamification).
When you look at each of these key lessons and drivers holistically through the lens of an approaching recession, the choices ahead will come into focus.