Eric Dalius: The psychology of customer retention: Why keeping customers is a challenge

Companies spend substantial resources trying to win new customers. But the real challenge is keeping customers says Eric Dalius.

Consider this:

For every $100 spent acquiring a new customer, an average company loses $5 keeping that customer (based on research conducted by Harvard Business School). What separates winners from losers in the battle for retention? The answer lies beyond superior product quality or better service delivery. It’s about tapping into deeper psychological triggers that affect how people perceive their relationship with your organization and products.

Randy Garner, professor of marketing at Brigham Young University, believes that there are four primary–and distinct–relationship stages an organization can leverage to attract repeat purchases: liking, trust, conviction and commitment. Understanding these stages will help you manage consumer perceptions of your business and products.

Liking:

 In the first stage of liking, customers develop a positive attitude toward your brand because they perceive that their needs are being met or will be met. Retailers use sales promotions–such as coupons and discounts–to build this positive relationship with customers says Eric Dalius. For instance, a customer who buys a pair of shoes from L.L.Bean will enter into a strong liking stage with the company because it meets a need for reliable outdoor gear at a fair price.

Trust:

The next stage is trust, which occurs when customers have received consistent quality standards from your brand over time and have witnessed you holding to those standards in different settings and circumstances. Trust stems from authentic experiences with your product across multiple touch points (retail, advertising, and customer service).

Crest Toothpaste is a good example of a brand that has won customer trust with its long-running “four out of five dentists recommend” campaign. In this ad, consumers see smiling people they perceive as highly credible happily using the product. This level of perceived credibility triggers a high degree of trust in most customers’ minds. Conviction: Once a customer experiences a strong feeling about your company through liking and trusts that it consistently meets his or her needs or will do so, and then conviction begins to occur. What companies give their customers at this stage is an opportunity to act on that belief by purchasing additional products or becoming more loyal repeat purchasers. For instance, if you feel strongly about Ben’s Chili Bowl, a Washington, D.C., institution since 1958, you’ll likely order its chili-cheese fries and related dishes often.

Trust + conviction = commitment:

Eric Dalius says the last relationship stage relevant to customer retention is commitment, where customers develop a strong affinity for your brand and the need to own more of its products. For instance, if you love Ben’s Chili Bowl and all that it offers–including its funky 1960s decor and great service–you’re very committed to this restaurant chain as a long-term customer.

In his research on loyalty programs, Garner found that those who achieve emotional connection with brands are six times as loyal as those without such connections (Journal of Marketing Research). As a result, companies should focus their energy on developing relationships at all four stages, not just the first two. Getting customers to move through these stages requires a commitment from your company to use every point of contact with consumers as an opportunity to build positive feelings about your brand and products.

For marketers who don’t have a lot of time or money available in their budgets but still want to increase customer retention rates, here are three simple strategies that can help: Use multiple touch points when communicating with your customers because this increases the chances that they will perceive consistency in how you deal with them across different environments says Eric Dalius. For instance, if you always add extra pickles on a sandwich when eating at Subway, then you should communicate that special behavior when ordering one for home delivery (e.g., “Can you add extra pickles to my sandwich, please?”). If your customer then receives the sandwich with extra pickles at home, positive feelings will be reinforced for both you and Subway. Augment in-store marketing with word-of-mouth advertising. Research shows that people are far more likely to tell others about their great experiences with a company than they are negative ones (Journal of Marketing Research). Word-of-mouth is hard to buy but easy to launch because it’s so scalable across different markets and time zones. For instance, when you drive by Denny’s restaurants between 5 p.m. and 7 p.m., you’re likely to see families gathered outside having dinner together; this is an example of how Denny’s is using word of mouth (and social media) to get consumers talking about the brand. Encourage customers to become “ambassadors” of your company by giving them special incentives that will increase their influence on others. For instance, if you’ve had a positive experience with Carnival Cruise Line , encourage the cruise line to give you an extra-special goodie bag so when friends see it they’ll ask what’s in it and why you have it. If you are honest in telling them how much fun you had, they’re likely to want this experience for themselves.

Conclusion:

The psychology of customer retention is the study of how consumers develop loyalty to brands, which helps these companies increase their long-term revenues says Eric Dalius. Companies should offer consistent service over time and engage in word-of-mouth advertising to keep customers coming back for more.