Increase Customer Retention in an Economy Defined by Customer Attrition

Perhaps it simply goes without saying that improving customer retention is critical to succeeding in an economy where customers are always looking for the cheapest available option. Unfortunately, it’s a sign of the times. Companies need to save money and sometimes the simplest solution is to award business to the lowest competitive bid. Customer attrition is commonplace in today’s markets, one marked by increased competition, lower demand for finished goods, fewer opportunities and even fewer customers to sell to. Your company doesn’t just need to retain more customers because it’s good for business; you need to retain more customers in order to stay in business.

So, what does it take to improve customer retention in this economy? What must your enterprise focus on so you can position it as the incumbent supplier? First, it’s important to understand that customers need to have a reason to stay with your business. Second, appealing to the lowest common denominator is no guarantee of success. Lowering prices to win business may work once or twice, but eventually you’ll lead your enterprise down the path of engaging in a never-ending price war, one where nobody wins and your company erodes its own gross profit margins. Third, your customers are looking for more than just a vendor. They are looking for a solutions provider, one who will distinguish their offering by bringing more to the table than its competition. Therefore, our plan to increase customer retention will focus on these three aforementioned critical areas. We’ll build customer loyalty, defend price and help your enterprise become a solutions provider.

1. Build Loyalty: Focus on increasing customer loyalty. Give your customers a reason to see your company as their only option. Give them a proposition that clearly distinguishes your company’s value.

2. Defend Price: Ignore the temptation to immediately drop pricing without having a solid reason to. Ultimately, the decision to drop prices should come from a position of power and our plan will help you secure that position with your customer base.

3. Become a Solutions Provider: Granted, this is often much easier said than done. However, every industry is defined by market leaders, ones who raise the bar by providing more than just a product. Our plan will allow your company to become that solutions provider, and it will ensure that your sales team has more time to spend working directly with customers.

What your company must focus on is a strategy that increases customer retention, protects your pricing and gross profit margins, all the while positioning your company as your customers’ most important vendor. Does all this sound impossible? Well, it isn’t. The approach that makes this all a reality is to come up with your own reward program, one that literally compensates your customers for loyalty, forces them to provide you with up-to-the-minute market data, and one that positions your company as the dominant solutions provider in your market.

Building Your Own Loyalty Schedule

The following table outlines how your company can come up with its own customer loyalty schedule. The loyalty schedule is based on the following premise: Your company agrees to provide your customer a discount for each unit they purchase on a monthly basis. In our example, that discount is £0.20 for each unit. Your customer must purchase a minimum monthly amount and continue to make that same monthly purchase for one calendar year in order to secure their discount. The more they purchase each month, the higher their discount. However, that discount is only given to your customer at the end of the year. The benefit of building a loyalty schedule is that it is not a contract and therefore, not binding. If your customer leaves the schedule, they lose their discount, and your enterprise has effectively protected its gross profit margins.

Month

Price

Quantity Purchased (Minimum Amount)

Loyalty Schedule Unit Discount

 Discount on Each Purchase Order

Accrued Discount

Jan

£20.00

25

£0.20

£5.00

£5.00

Feb

£20.00

25

£0.20

£5.00

£10.00

Mar

£20.00

25

£0.20

£5.00

£15.00

Apr

£20.00

25

£0.20

£5.00

£20.00

May

£20.00

25

£0.20

£5.00

£25.00

June

£19.50

25

£0.20

£5.00

£30.00

July

£19.50

25

£0.20

£5.00

£35.00

Aug

£19.50

25

£0.20

£5.00

£40.00

Sept

£19.50

25

£0.20

£5.00

£45.00

Oct

£19.00

25

£0.20

£5.00

£50.00

Nov

£19.00

25

£0.20

£5.00

£55.00

Dec

£19.00

25

£0.20

£5.00

£60.00

Looking at the table above, it’s important to understand what happens in the months of June and October. In both months, your customer hears of better pricing in the market. However, rather than just take those offers, your customer immediately reflects upon the loyalty schedule you’ve put in place for them. This is because of the discount they have built within the schedule. If you customer abandons the schedule in June, they will effectively lose out on their £30.00 discount. If they decide to stay within the schedule, but leave in October, then they’ll lose out on the £50.00 discount they’ve built up.  In this case, your customer becomes an active participant in their loyalty schedule.

Does Our Loyalty Schedule Address our Three Essential Criteria?

The overall goal was to accomplish the following. First, we wanted to increase customer loyalty. Second we wanted to protect or defend pricing. Third, we wanted to position the company as a solutions provider, one willing to bring new strategies to help the customer reduce their costs. Have we addressed all three criteria? We have. We have increased customer loyalty by giving customers a reason to return for more business. We have protected pricing by putting your company in the position of deciding whether to match the pricing within your market, or hold firm and keep the scheduled discount on your own. Finally, we have positioned your company as a solutions provider by increasing the amount of time your people spend working with customers. This allows your sales team to provide a number of other proactive solutions to help your customers.

Despite the current economic climate, your company can increase customer retention. It’s simply a matter of giving your customer a reason to buy into your company’s value proposition. Ultimately, it includes getting your customer on a loyalty schedule and helping them to build their discount over time. Gradually, that discount will put your company in a position of power, one it can use to decide whether to match lower pricing or hold price as is. Finally, the schedule itself is a proactive solution to reducing your customer’s costs. In addition, it increases the number of times your sales team speaks with customers, allowing your company to build upon its reward schedule with additional solutions.