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How to Improve Customer Retention: Build Wells Not Fences

March 31, 2015 by David Trites 0

Retailers spend an enormous amount of time and money battling to win new customers. But what if they already have you as a customer? Are they as focused on keeping you as they were on winning you over? Not likely.

If you already decided you like a product enough to spend your money on it, you probably don’t need to see and hear the same generic advertising and marketing that convinced you to buy it in the first place. You’ve evolved and deepened your relationship with the product and brand, so why doesn’t the retailer make an effort to deepen its relationship with you?

Scott McKain, a recognized author and advisor on retail strategy, says retailers are fanatics about customer acquisition but lack passion and precision when it comes to customer retention.

“We focus so much on acquisition, but we don’t focus as intensely upon retention, and it’s absolutely critical because net new business means than we not only keep the customers we have but we grow on top of that,” said McKain.

From Acquisition to Retention

Retailers that do not focus on customer retention and building long-term relationships work harder to maintain sales. That’s because they are always laboring to keep the number of net new customers high. Instead they could be fostering repeat sales with customers they have already won.

“The chances we can get existing customers to do more business with us is much more likely than what it takes to go out and get somebody new,” said McKain.

For some retailers, switching focus from customer acquisition to retention is a tough but necessary change in mindset. To explain the change, McKain tells a great story he heard from a business executive who grew up on a cattle ranch in Australia.

The executive said he grew up on a huge ranch. That was great for the cattle, but the ranchers had to figure out how to keep them from wandering off their land.  One solution, he said, was to build fences around their property. But that amount of fence was very costly to build and maintain, and the cattle would sometimes break through it anyway. So instead of building fences they decided to dig wells. The cool fresh water was such a delight for the cattle they never wanted to stray off the ranch. The cows were happy to stay home and the ranchers accomplished their goal faster, easier, and for less money.

At the end of the story the executive delivered a simple yet memorable punch line to his colleagues. He said, “Hasn’t our retail business been about building fences instead of digging wells?”

Build Wells not Fences

That story really resonated with McKain because it is a perfect lesson regarding the mindset needed to build effective retention strategies.  “I believe the purpose of any business is to profitably create experiences so compelling to customers that their loyalty becomes assured,” said McKain.

Knowing where and when to build wells is a challenge. McKain advises retailers to use the tools and information they have to better understand what customers really want. Today, a lack of data should not be a problem for any retailer. If anything there is too much data floating around to sort through.

If consumer information is scarce, social media is a new resource to consider. Social platforms enable retailers to engage with consumers one-on-one, listen to what they are saying about the brand, and provide helpful service and support. That type of information will point to where the wells are needed.

Turn Data into Information

Having the proper business processes and IT systems in place is also critical to building wells. Retailers need modern software solutions capable of collecting, centralizing, and organizing all customer data across every sales channel. They also need to build discipline around Big Data and analytics so they can quickly turn data into useful, actionable information. Otherwise they are just dowsing for water with a y-shaped stick.

“We need to learn to dig wells that are so compelling to our customers that they don’t desire to stray,” said McKain. That’s sage advice for any retailer looking for better ways to keep its customers on the ranch.

Watch this video to hear more from McKain about building customer retention:

This story originally appeared on SAP Business Trends.

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