Why should retention be the most important problem?

Building customer loyalty is a primary way to increase conversions and multiply profits. Acquiring a new customer costs 5-25% more than retaining an existing one whereas a 5% increase in customer retention yields more than 25% increase in profits.

An effective customer retention strategy starts with a) understanding what your customers value and b) providing a product that matches that. In today's era with a) low switching costs and b) expectation of superior customer service, repeat purchases need to be driven by value than just financial incentives.

WHAT IS RETENTION?

Customer retention is the process of retaining your current customers and getting them to return to your product for subsequent purchases/user sessions/engagement - depending on the core offering of your product or business in a time bound period.

WHY IS RETENTION IMPORTANT?

Retention becomes super important as it increases ROI, boosts loyalty, and is a leading indicator of product-market fit for early stage startups. In terms of monetary value, the cost of retaining a customer is generally five times lesser than acquiring a new one. Since on average, around 40%-50% of the users stop using a product in the first two months after purchase, it benefits the bottom-line significantly if a company can retain their users.

WHAT ARE THE LEVERS THAT DRIVE RETENTION?

There are several factors - both controllable and uncontrollable that drive retention. Some of those include a) product value b) customer experience c) relationship quality and d) switching costs. There might be other factors which varies from business to business.

CUSTOMER RETENTION STRATEGIES?

Product value is the primary driver for customer retention. Before you design your own customer retention programs, it is important to understand the most important factors that contribute to repeat purchases. An effective customer retention strategy starts with a) understanding what your customers value and b) providing a product that matches that. Personalised product recommendations, dynamic content, tailored rewards, triggered emails, are just a few of the possible customer retention tactics. It's obvious that customer loyalty depends on more than just financial incentives.

Most famous retention strategies focuses on a) reactivation b) advocacy c) discounts d) exclusivity e) offers f) loyalty programs. These strategies could be both a) marketing and/or b) product led. Marketing strategies primarily aim at getting users back to the product through channels such as a) SMS b) PNs and c) emails. These involve replanning and observing a) customer lifecycle and b) session journey to identify the a) right touch-points b) messaging c) context and d) value to engage and get users back on the product. Product strategies on the other hand could focus on the experience on the product such as a) personalised user journeys b) relevant offers c) micro-interactions to nudge users to complete the purchase d) show the value/benefit of the instant purchase to user.

DOES RETENTION MEAN DIFFERENT THINGS FOR A STARTUP VS AN ESTABLISHED BUSINESS?

For an early stage startup, retention is important as it ensures that acquired users are not going through a leaky bucket. It also helps them a) understand what the user wants b) rethink product add-ons c) focus on a specific cohort d) double-down on the best acquisition channels and e) achieve faster product-market fit.

For an enterprise on the other hand, product-market for at least a specific user cohort has been achieved. Hence the focus is on a) extending the offering to a new segment/cohort based on age, geography, behaviour, income, etc and b) cross-sell or upsell other product offerings to the existing loyal user base.

WHAT ARE THE KEY RETENTION METRICS?

Key retention metrics include a) repeat rate b) CLTV c) AoV d) daily/weekly/monthly retention. There are 2 ways to measure retention - a) snapshot method and b) cohort method. Before you can calculate your retention rate, we need to define a) what is a retained customer b) who are these customers and c) over what time period are we looking at retention.

WHAT DOES A RETENTION DASHBOARD LOOK LIKE?

Retention can be calculated on the basis of a) specific time-period or b) specific cohorts.

It is usual for a business to see a drop in their acquired customers. Ideally, the retention curve should flatten over a period of time.

CUSTOMER RETENTION EXAMPLES

1. Lingopie, a language-learning subscription service that leverages television content, is winning at customer retention and ahead of others in the industry. Their retention rate is 79% after four months, higher than other subscription service giants like Netflix, HBO Max and Disney+.

2. Amazon Prime, a subscription service for faster deliveries and for unlimited video and audio streaming is way ahead of its competitors in terms of loyalty and repeat purchases from prime customers.

3. e.l.f. Cosmetics, is best known for its subscription program which has been created keeping personalisation at its core and using relevant timing, positioning and messaging to target users at the right time.

4. Starbucks, is renowned for its Rewards program. Through the program, consumers can earn points, stars, and rewards for their purchases in Starbucks’ brick and mortar locations, local grocery stores, or ecommerce outlets.