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.
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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:
- Identify the most important opportunities and challenges in their customer journey
- Constantly monitor customer satisfaction levels and make sure you are meeting their needs
- Proactively introduce strategies to address their pain points quickly, efficiently and thoroughly
- Assess what influences their retention patterns during recession and provide a forecast based on the trends
- Track data insights to determine how and where to allocate resources
- Identify customer communication especially over the customer life cycle
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:
- Customers, during an economic slump seek to obtain better value, so level up your customer success initiatives. Reinforce this through clear, consistent and appropriate communication. Introduce sophisticated measures to predict customer behavior and initiate communication and engage customers with trust. During the 2008 crisis, companies waited to communicate and when they did, they relied on a scripted narrative which lacked authenticity and sparked distrust during a time where customers needed trust and confidence.
- During an economic slump, it’s doubly important to listen to your customers and respond to their concerns proactively. Customer needs change in a downturn and if you are on the pulse of those changes, you can better adapt, innovate and serve their needs. Recession is the time to double-down on loyalty. Engage, encourage and acknowledge customer feedback and take appropriate action. During periods of economic distress, it’s critical to take action and make smart investments in your existing customer base. Don’t make the mistake of not investing in your existing customers. If you don’t have a loyalty program, then get one and if you have a loyalty program, then make sure it is relevant and meaningful for the current economic conditions. Surprise and delight your customers and get feedback. One of the metrics to analyze customer feedback is NPS (Net Promoter Score) which provides an insight into customer repurchase intentions. Back in 2008, companies suffered significantly because they were neither agile nor responsive as they should have been.
- Focus on product development for your existing customers. To foster customer loyalty and retention, think about what improvements you can make to reduce friction and create more ease of use.
- No two customers are the same. Hence you need to calculate the lifetime value of each customer, define segments and establish service levels and strategies accordingly to deepen relationships and cement loyalty. It’s important for organizations to identify customer profitability drivers and segment customers to streamline communication, initiate interactions, manage expectations and drive loyalty.
- Customers value the choice of selecting how and when to communicate with your brand. Enable automated interactions and anytime availability self-service portals, chat bots or live chats to ensure customer convenience. An ATG global consumer trend study found that 90% of customers consider live chat helpful, 62% are more likely to purchase again from a site that has live chat, and 38% of respondents made their purchase due to the live chat itself.
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.