What is the value of customer retention?

Throughout my career I’ve believed that it’s easier to get more business from existing clients than it is to develop new ones. That’s not to say you don’t want new customers, but given the effort and expense involved, trusting relationships and customer loyalty tend to win over strangers.

However, when we think about digital transformation, the topic of customer retention is usually an unmentioned benefit and nowhere to be found in the ROI rationale.

Why is that?

Why is no one considering it?

The quick and dirty truth is that the rewards of customer loyalty aren’t instant; Loyalty builds over time. When considering digital transformation, companies typically focus on immediate results and ROI, emphasizing predictable outcomes such as efficiency, cost reduction, and turnaround speed.

Structural silos encourage breakage incentives and targets. Manufacturing, operations and procurement are motivated differently than post-sales customer success; The former take care of costs while the latter focus on improving customer lifetime value.

Since most digital transformations take place in silos, the operational side of a company will not usually consider the significant improvement in customer retention when making the case.

Year after year, companies report problems such as a lack of transparency in their supply chains. Yet many continue to delay their digital transformation, a move that hurts more than efficiency. Damaged trust and relationships also come at a cost. If you don’t factor retention and loyalty into the equation, you’re missing out on a significant element of value.

The true value of customer retention

If you meet or even exceed customer requirements, the expectation is that they will buy more and you will grow with them and start taking a bigger part of their business. After all, wouldn’t they rather deal with a well-known company than take a chance on someone new or with a spotty record?

In my own experience, loyal customers tend to build longer-lasting relationships, return for repeat purchases, provide references for new business opportunities, and often accept a slight price premium over competing offers for comparable services.

These aren’t just empty expectations and anecdotal evidence—studies consistently show the significant financial benefits of customer retention.

Respected consulting firm Bain & Company found that companies working to build loyal customer experiences:

• 20% less customer churn
• 2x revenue growth (for Loyalty Leaders)
• 15% cost advantage

Trust is at the heart of loyalty

Whether with existing or new customers, promising too little and delivering too much creates trust. You see this every day in e-commerce, where the order’s promised delivery date is often exceeded by an earlier one, giving customers a good brand experience and greatly increasing the likelihood of ordering again.

According to Gartner, “By earning the trust of their customers, companies create financial value in their brands.” Their survey found that in the B2B world, trust contributed more than twice as much to customer experience as product expertise and commitment to realizing customer value. In fact, 89% of customers said they would actively disengage from a brand that betrayed their trust.

Conversely, building trust offers incredible benefits such as: B. Reduced transaction costs and higher productivity, as well as a 5% increase in customer retention due to increased loyalty, resulting in an amazing 75% increase in the NPV of an existing customer*.

How to start incorporating customer loyalty and trust into your digital transformation

The ultimate goal of any organization is to create loyal customers. That loyalty isn’t as obscure a value as many seem to think—there’s a real payback.

Digital transformations that consider this integral component as part of their ROI calculation provide a more complete picture of what their investment can achieve, but require a vision that goes beyond departmental silos.

Article on customer loyalty and permission for publication here provided by Bryce Boothby. Originally published on Supply Chain Game Changer on September 24th, 2020.

Leave a Comment