Customer Retention Rate – What does it mean?

t is one of the most profitable methods for selling goods and services. Once a company has attracted a consumer to ‘buy’ and ‘try’, a satisfied customer is the best means to retain that business for the foreseeable future.

There are many reasons to keep customers satisfied; most importantly to earn their business again. All marketers know that it costs much less to convert an existing satisfied customer into a repeat sale than to ‘conquest’ a new sale from another brand. If you browse enough web sites, you will see that…

  • Acquiring new business can be 5 times more expensive than retaining customers.
  • Increasing customer retention by just 2% can translate into a 10% cost reduction
  • Some retailers indicate their top 15% of ‘loyal’ customers comprise 50% of their sales revenue.

Those are some valuable customers and the statistics speak to why a high customer retention rate is so important.  Substantial sums of money are spent on survey data and questionnaires because a Satisfied Customer = A Valuable Customer !

So, how likely is your company to retain customers in the future? Past and current behavior is the best predictor of future trends. It is of the utmost importance for marketing analysts, brand managers and advertisers to understand both the current retention rate and defection from the analysis of ownership and/or survey data. The Customer Retention rate is often referred to as Loyalty.  Loyalty is represented by the percent of current owners that repurchase the same brand. Those who don’t repurchase the same brand are defectors and they represent lost business.

Also of importance to brand health is the measurement of conquest. Instead of looking at the current owners and “where the business went” (retained or lost), a look at new customer’s behavior will supply a measurement of where the business came from, or where new sales were ‘conquested’ from a competitive brand. Conquest is also important when considering a brand’s customer retention rate.

The graph below shows overall brand health by plotting the brand customer retention rate (loyalty of current owners) against the conquest rate (new sales from a competitive brand).

  • Brand A is the healthiest of brands given its strength in customer retention of current owners while attracting new buyers from the competition.
  • Brand B is successful in attracting brand switchers, but needs to work on current owner’s satisfaction to ensure a higher customer retention rate.
  • Brand C is relying on customer retention, but is in danger of slipping into ‘Decline’ if a downward trend in loyalty occurs.
  • Brand D is the weakest relative to its competitors and needs to identify a strategy to move its position.

Where is your brand’s health in the customer retention and conquest relationship? Is your survey data capturing these elements? What does it look like in terms of specific demographics or geography?  How does it compare over time?

PAI would welcome the opportunity to demonstrate how PAI’s mTAB™ service would benefit your understanding of customer retention rates, defection and conquest.  Please visit the PAI website to schedule a no-obligation review of mTAB for an analysis of consumer behavior data.

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