September 10, 2021

How Customer Experience Impacts Retention

When it comes to who they want to do business with, customers have plenty of options, and their loyalty can be easily lost. There’s no denying the strong correlation between customer experience and retention.

One of the best ways to fight customer churn, increase retention, and achieve growth is by investing in customer experience and using customer insights to keep improving. This is an iterative process.

A recent study commissioned by Qualtrics revealed that positive experiences directly increased purchasing and referrals and that focusing on building emotional connections with customers had the biggest impact.

According to Zendesk, 74% of customers say they’re loyal to some business, and 57% share that the quality of the service they receive has a strong influence on loyalty.

Luckily, with 40% of consumers test-driving new brands in 2020, you have the opportunity to win loyalty during this transitional time as customers establish new habits and address new concerns. However, there’s some urgency here. As the dust from the past year settles, it’ll get harder to convince customers to switch to something new.

Here are some specific examples of what better retention rates mean for your business and how customer experience factors into the equation.

A Loyal Customer Base Sets the Stage for Growth

High retention rates are a healthy sign of product acceptance and not only make the industry a better place overall but also can benefit a company’s bottom line on both ends.

Retaining existing customers means repeat purchases, upsells, and cross-sells. These efforts result in more sales, higher customer lifetime value (CLV), and a predictable incoming revenue stream.

It elevates the customer’s expectation of what the industry’s customer experience should deliver and helps it rise in overall quality of service to its patrons. In turn, it allows businesses to make better decisions about how to invest in their business, whether that’s setting a budget, timing large orders, or launching new initiatives.

Understanding the impact of customer experience on retention also saves money. Churn often causes companies to lose revenue—both in terms of the loss of that customer’s business (especially for SaaS/subscription-based businesses) and the money spent to replace them. Currently, it can cost 5x more to attract new customers than it does to retain existing ones.

If bad customer experience is causing churn, you must also consider the costs associated with rehabbing reputation and revenue a business is missing out on because it’s gotten harder to grow. Marketing to those consumers becomes less effective, and, as a result, the business ends up spending more money on lead generation and not reaping the rewards of revenue and customer insights.

Existing Customers Spend More and Try New Things

While the right marketing plan requires jumping through several hoops, one thing is for sure—it’s profitable to target your existing customer base. In fact, companies that offer great customer experiences can charge 16% more for their products and/or services.

Studies have even shown that when customers have a history of positive experiences with your brand, they’re 50% more likely to take a chance on a new product and are willing to pay an average of 30% more on that product than first-timers.

Continuing to solve problems and deliver high-quality products means customers can expect new solutions to meet certain quality and usability standards, which means they’ll spend less time researching other options and mulling over their decision.

That said, retention starts with making sure customers are willing to return in the first place. After all, a bad experience can turn them off forever.

That same Qualtrics report also found that 94% of customers that rated an experience as “very good” were “very likely” to buy from that brand again. By contrast, only 18% of customers reporting “very poor” experiences gave the same answer.

Note: It’s unclear whether these bad experiences happened after having positive experiences with the same brand or if it was the first time shopping with them. In which case, it makes sense that some would give that brand another chance.

Essentially, it all comes down to building trust through consistent experiences, including service, messaging, commitment to values, product and/or service quality, and response times.

Great Experiences Generate Business

While it takes time, investing in customer experience and retention strategies can deliver some major returns and will eventually end up doing a lot of the acquisition and marketing for you (and for free). Here’s how:

  • Reputation—Positive reviews and recommendations will help you establish credibility and strengthen trust between you and your customers. Ideally, the business becomes the go-to company in its niche (think Salesforce for CRMs or Sephora for beauty—places customers automatically check when they’re starting to look for solutions even if they’ve never shopped there before). Rave reviews also set businesses apart from competitors. This is a highly crucial part of the buying process as customers want assurance from others that this is the best solution.
  • Reach—The shift to online has emphasized the growing relationship between customer experience and retention. Reviews and mentions boost a company’s online footprint, making it easier for people to find a business on search and review sites. When customers mention the company on social platforms or tag them in a post, they reach their followers (many of whom are probably part of the business’ target market).
  • Referrals—Get it right and happy customers will recommend a business to their friends, family, and colleagues. Referred customers already know a business has what they’re looking for, and because someone they trust recommended said business, it’s easier to convince them to take action.
  • Refinement—Where good customer experience happens, others will follow suit. Therefore, the overall product sector rises in quality of service and raises the bar in expectations from its customers. During the time the industry is catching up, companies will enjoy the dividends of their differentiation and leadership.

While companies don’t have to pay customers to leave reviews or tag their business on social (avoid this strategy—it’s deceptive and some platforms have banned the practice), they will need to invest in things like developing a loyalty program, generating reviews, partnering with influencers, affiliates, or brand ambassadors that drive engagement.

Creating Seamless Customer Experiences To Improve Retention

Every business, regardless of industry or niche, needs a loyal customer base that will return time and time again and act as a promotional arm for their brand.

Overall, prioritizing customer experience is good for long-term growth—not just for your business but for your industry and the quality of service enjoyed by its customers.

You need happy, devoted customers to ensure predictable revenue, improve lead generation, engagement, and brand visibility, build a great reputation, and get the most out of your marketing and advertising budget.

A heightened focus on customer experience and retention makes that happen. Still, there’s a lot that goes into getting it right—technology, insights, people, as well as strategy, focused on bringing these elements together to deliver the best possible experience to customers and, most importantly, building real relationships.

Leading the customer experience curve will undoubtedly deliver long-term dividends of differentiation.

If you’re looking to create seamless customer experiences and improve retention, 3Pillar Global experts can help. Contact us today to learn more about our process.

Special thanks to these members of FORCE, 3Pillar’s expert network, for their contributions to this article.

FORCE is 3Pillar Global’s Thought Leadership Team comprised of technologists and industry experts offering their knowledge on important trends and topics in digital product development.