5 Steps to a Customer Retention Strategy

What actions can you take to both increase employee engagement and create a customer retention strategy that moves more of your customers from “satisfied” to “loyal”? A 5-step roadmap to get you started.

One of the key tenets of a customer retention strategy is that it relentlessly focuses on value creation. This emphasis on value and delivering exceptional service is what gives truly customer-centric companies the edge: It increases customer loyalty and that loyalty drives growth. But how do you know if your customers really are loyal?

Many organizations use customer satisfaction or Net Promoter Score (NPS) as the primary metric to determine how well the organization is creating value for customers. The assumption is that if customer satisfaction scores are high, then we must be doing things right and our “satisfied” customers must be “loyal”.

Bad assumption.

Customer satisfaction alone does not guarantee customer loyalty.

Part of the reason is that there are three types of customers — dissatisfied, rationally satisfied and emotionally satisfied — and your rationally satisfied customers don’t behave much differently than your dissatisfied customers. This explains why 8 to 9 out of 10 customers will say they are satisfied but only 4 or 5 will buy again.

All too often, customers who appear to be very satisfied with a product or service are only as loyal as the next best offer made (by you OR your competition). While rationally satisfied and dissatisfied customers may have different views about your offerings, neither has a sense of loyalty to your organization.

Loyal customers are the ones who not only intend to repurchase from you but are willing to endorse or advocate for your product or service to others. Those behaviors come from being emotionally satisfied by their experience working with you. This isn’t about the quality of your products and services. Nowadays, quality is just the barrier to entry. This is about people and relationships.

The Relationship Between Customer Loyalty and Employee Engagement

Having a customer-centric strategic plan is a critical starting point for increasing customer retention and loyalty, but it’s only the start. To deliver exceptional value and service, you need employees who are committed, motivated and inspired to do it. This isn’t something that can be mandated by management. It can only be willingly given by enthusiastic and dedicated individuals who are focused on more than just a transaction. They want to build long-term relationships and create value beyond the product or service itself.

Fundamentally, this is an issue of employee engagement. Engaged employees care about the impact their work has and are personally invested in making a difference for their customers. It stands to reason, then, that the more engaged your people are, the more willing they will be to put in the level of discretionary effort required to strengthen customer loyalty and sales retention.

In fact, numerous studies over the years have emphasized this link between customer-centricity, employee engagement and customer loyalty. Recent research shows that customer retention rates are 18% higher when employees are highly engaged, and that companies with high employee engagement are 22% more profitable. Any organization looking to improve customer retention has to place a priority on employee engagement.

Does your culture support the kind of engagement that will inspire people to go above and beyond for their customers?

One thing to keep in mind is that people work best when their activities are clearly aligned with a set of principles they can connect with and get behind. Ask yourself:

• Does our organization’s purpose inspire our employees?
• Does every employee understand how his or her role contributes to the overall purpose?
• Can our employees describe, in their own words and in a meaningful way, how our organization creates value for our customers?

Creating a Customer Retention Strategy: A Leadership Roadmap

Customer-centric organizations continually work on this because they know a satisfied customer doesn’t necessarily equal a loyal one. The relationships and value created by engaged employees is what keeps their customers coming back and fuels their growth and profitability.

What can you do to move more of your customers from “satisfied” to “loyal”? Here’s a 5-step roadmap to get you started:

Create value for customers continually- not just once

Create a vision, mission and set of values (or guiding principles) that focus on continually creating value for customers. This is essential to drive the right employee behaviors.

Operationally define “customer-centric”

Establish metrics that define success and identify the right behaviors to reinforce.

Put your people first

Help them fulfill their personal values and goals and develop their talents. Involve them in creating the implementation plans needed to drive your customer-centric strategy. Invest in them by providing training that’s aligned with organizational strategy.

Empower them with the authority and responsibility to make decisions that will produce desired results.

Use customer retention as a tool to create alignment

Align all human resource and management practices necessary to implement your customer-centric strategy, and communicate the necessary behaviors and competencies required for successful implementation.

Emphasize the importance of communication and building trust between employees and managers

Be as transparent as possible about your organization’s performance and operational strategies.

When people are driven by values and an organizational purpose they believe in, given responsibility for the results of their efforts, and recognized and rewarded for what they do, they will deliver exceptional value and service to your customers. That’s what being customer-centric is all about. And that’s how you create a base of long-term, loyal customers that results in superior long-term growth.