Market Share and Customer Retention

We function in an environment where more equals more, and a common theory is that in order for your business to grow and make more money, you need to increase your market share. When we hear this phrase – increase market share – we immediately think that this is achieved by acquiring more customers. So as entrepreneurs, we spend a great deal of time, money and energy on securing more customers.

Change your perspective

Our current perceptions make us believe that customers are submissive targets. As entrepreneurs, we create value through services or products, and the customer is our target. Naturally we believe that more customers mean more sales and ultimately, business growth and sustainability. We are taught this theory in business 101. But what if we changed that perspective? What if the value that is created is not a product or a service, but rather it is an ongoing relationship between you and your customer, whereby the value is co-created, rather than transferred from one party to the other, only at the point of sale.

In other words, your products or services – as innovative and as great as they may be – will have no value if there is no customer to use them. Let’s look at products like life insurance or medical aid. When is the value created? The only time the customer uses the product, is when they get sick or they die. The customer does not benefit in any way during the period that they pay for their policy, in fact they are just a little poorer. Hence the introduction of loyalty programmes such as Discovery Vitality, where the customer can constantly experience the value from their monthly contributions.

It is the actual use of your product or service that creates value to your customer, therefore the value of your product or service is actually created by your customers when they use your products. Once that use is over, how do you create value for them again? Especially if your product or service is a once off transaction.

Studies show that retaining your current customers is more profitable than acquiring new customers. As entrepreneurs, profit means sustainability. But despite this evidence, the majority of business owners do not have any strategy in place to retain their current customers, but rather concrete strategies to acquire new customers.

Hierarchy of Effects Model

According to the Hierarchy-of-Effects Model of Consumer Behaviour your customer follows numerous, time-consuming steps before making the decision to use your products or services. These include awareness, knowledge, liking, preference, conviction and finally, the actual purchase.

The investment required from you to acquire a customer is substantially higher than the investment required to retain a customer, and yet after all of this hard work and the costs involved from your side, most entrepreneurs drop the ball with regards to customer retention after just their first transaction. So, what if we started to look at increasing our market share through the retention of our customers?

What is customer retention, really?                      

There are many definitions for customer retention, but basically all them infer that customer retention is the continuation of the relationship between a customer and their service provider whereby the customer chooses to stay with the business because of the value that they think they will receive in the future. A slight increase in customer retention may significantly increase your company’s profits.

Why is customer retention important?

Not only does losing customers result in revenue loss, but it also ensures that you lose the opportunity to recover that customer’s acquisition costs. Pressure is then placed on you to acquire more customers to replace the lost customer, and your business resources already affected, are exhausted even further.

The pressure placed on you to replace a lost customer is further intensified by a saturated market of previous customers who are now dissatisfied with your services and products, resulting in an even smaller market for potential customers. Customer retention must be deliberate, so I am going to share with you some practical and deliberate steps that you can take to increase your customer retention, and ultimately, increase your market share.

Step One: Introduce a customer retention management programme

Why do customers leave? Companies lose approximately 20% of their customers every year. So just think about that? Are you in a position to lose 20% of your income every year?  

The truth is that it is no longer realistic for companies to avoid change, and staying the same gives your competitors the opportunity to steal your clients with more innovative products and services, and better experiences.

The market is vastly different from the way it was this time last year, and it continues to transform at a rapid rate. It’s easy for customers to change their service provider. Competitors within the market are increasing, fast, and customers are becoming more knowledgeable of their options and their buying power.

Think about online shopping and how this has changed the landscape of the marketplace. Customers can now compare prices of the item they want to buy at the swipe of a screen. They can purchase products online at discounted prices because online shops have lower expenses than the same retailer renting a space in a shopping center. With quick purchase options and free delivery, the customer always wins. How do you compete with that?  

Introducing a customer retention management programme into your business will help you to identify current and possible reasons for why your customers leave you. Once these reasons are identified, you can take action in reducing these pain points for customer loss. Don’t be shy to ask customers that no longer use your services, why. Your customers may leave you to change to another provider, or because their need for such a service is no longer relevant. But, a customer may also choose to leave you due to the quality of their experience with you, either in relation to your competition or in relation to their own expectations. Knowing this information gives you the opportunity to change, upgrade, and outsmart your competitors. 

Step Two: Focus your efforts: Retain the right customers

Customer loyalty equals customer profitability. But it is important for you to be deliberate in the decision as to whether the cost to retain a customer is worth the monetary value that they bring to your business. Not all customers are equal in value and 80% of your business is likely to be a result of 20% of your customers.

To highlight this, a recent study found that 53% of the value of the United Kingdom’s retail financial services market is obtained from as little as two of its eight segments, and in 2015, PricewaterhouseCoopers indicated that more than 90% of their value was achieved purely by the “over the age of 35” customer bracket.

In other words, work smart and you can optimise your customer retention management efforts, by selecting the right kind of customer to retain.

Step Three: Continuously appeal to your customers’ needs: Introduce new but related products and services

Approximately one third of business growth leaders have achieved their growth through appealing to the needs arising from changing consumer behaviour. These companies view the disruptions caused by changing behaviour as an opportunity to satisfy customers’ needs.

Think about your customers. Do they vary in terms of their needs as well as the monetary value they offer your business? How can you better satisfy these needs? When you answer this question, I want you to keep in mind that these needs are your customers’ needs, not your own. And the best way to find out the answer, is to ask them.  

Many companies make the mistake of trying to sell more of what they think their customer’s need. A recent study by Grant Thornton, indicated that 86% of community bank executives intended to offer new products and services to their customers, but less than 20 percent followed through with their intentions. Companies are renowned for attempting to sell their customers more of the same products and services that they offer. But a customer will not be motivated to buy your product or service if they do not have a need for it, regardless of how attractive it is.

Go back in your memory to your last telesales call, did you buy what they were trying to sell you? If you did, it’s because you needed that product or service at that exact moment. But you most likely didn’t buy it, and that is because they were trying to sell you something you didn’t need.

In 2014, an interesting study was done by the researchers Park and Han. They discovered that customers who purchased a diverse range of products from one company were more likely to become loyal customers to that company, than customers who purchased more of the same product from another company. The companies that offered diverse products were more profitable and successful, than the companies that sold more of, but one product. 

As simple as it sounds, introducing a wider range of products or services that anticipate and appeal to your customer’s changing needs can enrich your customer retention. Keep in mind that you don’t want to become the corner café in your industry, but think about your value chain. Where can you integrate backwards or forwards? If you are a graphic designer, can you set up a partnership with a printer so that you can offer your customer a fuller service, before they find it elsewhere?

Step Four: Remember that your customers are value co-creators

What does your customer want to achieve through the use of your products or services? As discussed earlier your product is not the value. The capabilities that your product provides to your customer, is the value enabler, but this value is not realised during the sale. It is only realised during the actual use of your product or service, making your customer a very active participant in the creation of the value you offer.

With this in mind, you should not focus on what features can be added to a product that you offer, but rather consider what you can introduce to assist your customer in the creation of that value when using your product or service.

As an entrepreneur, your strategic advantage is not determined by your products or services, but by your intimate knowledge of how your customer can benefit from your products and services, practically and emotionally.

So, if your customers are the co-creators of the value that you offer the market, then you need to create and maintain concrete relationships with them.

Step Five: Introduce a deliberate customer engagement system

Customer relationships can be used to understand and influence your customers’ behaviour, resulting in enhanced customer loyalty, retention and profitability. But customer relationships can also provide you with extensive customer information that can be used to generate opportunities for the upselling of your current products and the cross selling of new products and services to your customers.

Let me give you a simple example. If your business makes branded T-shirts and you sell 100 T-shirts a month to ten regular customers, would you rather introduce an additional product such as branded shorts, and sell double the amount of products to your ten regular customers? Or would you prefer to spend your resources on acquiring another ten new customers to sell more branded T-shirts?  

Not only does the development of strong customer relationships enable you to focus your energy on increasing the monetary potential of each of your current customers, but engaged customers are satisfied customers. Whether customers remain with you for the long term is determined by the experience that they have with your business. And so, customer retention is not necessarily determined by price, but rather by the way your customer feels when they interact with you.

Customers that are continuously engaged with your brand develop an emotional and psychological investment in your business. And customer relationships are created when your company makes your customer feel something in such a way that they are interested in experiencing that feeling again.

Step Six: Introduce a company reputation management programme.

It is vital for you to understand your customers’ social networks, because their behaviour is greatly affected by their social interactions. Positive and negative information about your company can either encourage a new customer to purchase your products or services, or to cancel their services with you.

Negative word of mouth has a more powerful influence on customer decision-making than positive word of mouth. And ensuring a positive company reputation within your market is paramount.

Having a clear and deliberate programme for this is extremely useful. Ensure that service defaults are immediately corrected, hire staff that are naturally motivated, and deliberately keep them motivated. However, the most important role that you have to play as an entrepreneur, is to help others. Your business will only survive if you authentically and passionately help others, including your customers. So, give back to the community, support other entrepreneurs with your time and resources, and connect with causes that you are passionate about. Communicate your efforts and make your customers acutely aware of why they chose to do business with you, and why you do the business that you do.

Step Seven: Introduce value-added benefits 

This is something I am very passionate about because I have seen first-hand how effective value-added benefits are for customer retention. I spent two and a half years researched and testing value-added benefits for customer retention purposes for my MBA dissertation, and the results are nothing short of remarkable.

Study after study shows us that customers change their service providers when the current value of their product does not adequately compare to the possible value of another product from a different service provider. When a customer decides to buy a product or service, they assume that the product they have chosen will give them with the maximum amount of total value. It’s not rocket science, and we see it every day: get a free pasta sauce with your spaghetti, or buy a buy this mop, and get a free bucket.

The first step to introducing value-added benefits into your business is to establish a clear understanding of who your customers are, and what their needs, requirements and expectations may be. Only once these customer expectations are identified, can you attempt to satisfy them.

But isn’t everyone trying to satisfy their customers’ needs? Definitely. As global market competition and customer expectations increase, organisations are being forced to focus on a competitive advantage that is unique. A suitable strategy for this is the creation of unmatched value for the customer. This is where value-added benefits step in. These are products or services that are offered to your existing customers to complement or enhance the core product or service that you offer. They provide enhanced value for your customer at a decreased price, which cannot be matched by your competitors.

Let’s go back to the medical aid example. You may get the same cover for the same price from two or more medical aid providers, however you would choose the provider that gives you the most value. And that value can come in various forms depending on your personal needs - free smoothies at the gym, discounts at your favourite retailer, get two but pay for one movie tickets, etc. etc. The core product is no different from the competitor’s, however the customer’s value perception of the one provider is higher than its competitor, because of the value-added benefits on offer.

As a business owner, value-added benefits allow you to make the transition from once-off transactions to long-term customer relationships, ultimately locking in your customers to a journey of needs satisfaction. As long as the satisfaction of your customer’s needs are implemented positively throughout their relationship with your business, a lasting bond between you and your customer is formed, and your customer is less likely to seek an alternative service provider.

As an entrepreneur, think about how you can introduce value-added benefits to your core products. It could take the form of free after sales services, discounted prices for new related products on offer, partnerships with fellow business owners whereby your customer benefits financially, or even free product trainings or talks. Whatever it is, it will make your total product or service offering unique, and difficult for your competitors to copy.   

Entrepreneurs can no longer rely on unique products, cost reductions and improved customer service to retain their customers. The key to modern day customer retention is a combination of deliberately engaging with your customers in a such a way that their needs are more effectively anticipated and satisfied, while ensuring that the emotional aspect of your product or service bonds your customer to your brand.

Customer retention is a conscious business activity, that is as important as customer acquisition, if not more important. It ensures the success and sustainability of your business. It is the $50 note you find in your suit jacket the next time you wear it, because it’s yours and you have earned it, you may have just overlooked it.