The power of market research for customer retention

Most people know it costs less to retain a current customer than to attract a new one. Yet, it’s easy to overlook the ongoing value of loyal customers and what they can do for your business.

Existing customers are 50% more likely to try new products and spend 31% more on average than new customers, and 77% of them would recommend a brand to a friend after a single positive experience.

Customer retention is all about making sure repeat shoppers are satisfied with various elements of your products and the overall experience you provide. While this offers many opportunities for success, it also makes it difficult to recognize what you’re doing right or wrong.

Market research is the secret sauce that will help you improve customer retention and build a loyal customer base that’s eager to try your products and share their outstanding experiences with family and friends. It gives you the data you need to understand what drives customer behavior and how you can nurture customer loyalty.

Unlike customer acquisition, which involves grabbing customers’ attention, customer retention is about delivering consistently good service to keep customers coming back. It’s the process of engaging customers so they continue purchasing your offering.

Customer retention reflects the quality of your products or services and the overall experience you provide for your customers. It encourages customers to turn to your business when they’re seeking products related to your industry. Crucially, it’s what prevents them from switching to a competitor.

Why is customer retention important for businesses?

Loyal customers provide a variety of benefits for your business. Their purchases are free from the rising costs of acquisition, and they often spend more than new customers.

However, customer retention does more than just raise profits. It creates loyalty. Loyal customers become brand ambassadors who will encourage new customers to seek out your business. And the best bit? This doesn’t require any effort from your marketing team—they’ll do it all by themselves (although you can certainly encourage them with referral-based incentives).

Customer loyalty can also be a valuable indicator of the quality of your products or services and how customers view their interactions with your business.

What are the six key factors of customer retention?

These six key factors can help you generate customer satisfaction across all points of the customer journey to achieve customer retention:

1. Product quality: the quality of your products or services is the first and most important way to achieve customer satisfaction. Quality products lead to repeat purchases and interest in new products as your team develops them.

2. Customer experience: hassle-free interactions that don’t cause bottlenecks give customers a positive association with your brand. This includes all aspects of your business, whether customers are shopping in-store or online.

3. Competitive pricing: while price isn’t always the most important factor for customers, your prices must align with their expectations. Inflated prices make customers feel like you’re taking advantage of them.

4. Customer service: customers who get the support they need before, during, and after their purchase are more likely to see your brand in a positive light. The experience encourages them to return for repeat business and share their positive experience with acquaintances.

5. Loyalty perks: it’s common for businesses to offer special deals for new customers, but loyal customers deserve discounts, too. Loyalty programs come in many shapes and sizes. You can offer a discount after a specific number of purchases, develop a rewards points program, or offer referral-related discounts.

6. Personalization: tailoring experiences, communications, and offers to individual customer preferences and behaviors can enhance customer satisfaction and loyalty. Personalized interactions show customers you understand and care about their specific needs and preferences.

Market research is the practice of gathering information about your target audience’s needs, preferences, and behaviors. Gathering factual data about your target audience through various channels gives you insight into what they want and expect from your company and how you can delight them with your actions.

You and your team can conduct market research in multiple formats to examine the success of new products or upgrades, improve customer service, and provide perks your customers will enjoy.

Use surveys to understand your target customers

To satisfy your customers, you need to be able to understand their needs and desires. Surveys are an excellent research tool for learning about your target audience’s pain points, preferences, and experiences. They are one of the few research methods that give customers a voice to tell you what they expect from your business.

Surveys can provide you with a wealth of data about your target audience, including the following:

• What customers need from your product

• Preferences about everything from targeted marketing to where and how they like to shop

• How much customers are willing to pay for products and services

• Factors most likely to influence purchasing decisions

• Actions from businesses that drive brand loyalty

• Customer satisfaction levels

• Pain points or issues related to your service or product

Develop personalized experiences with market research data

84% of consumers say being treated like a person, not a number, is very important to winning their business. 82% are willing to share their personal data in exchange for a more personalized experience.

This is great news for researchers seeking ways to improve customer retention. You can get permission to collect personal data from your customers that provides insight into what they want from your brand.

Use data to create customer segments

Market segmentation is the process of sectioning the total addressable market into smaller groups. It enables you to create targeted experiences and personalized communications.

Collecting demographic, behavioral, geographic, and lifestyle information allows you to segment your audience into groups with similar interests so you can better meet their needs.

Evaluate levels of customer trust in your brand or service

90% of business executives think customers hold high levels of trust in their companies. In reality, it’s only 30%. Market research can be the difference between widening the 60% gap and closing it.

Use net promoter score (NPS) surveys and other loyalty and satisfaction surveys to evaluate how much your customers trust your business.

Ultimately, high levels of customer satisfaction indicate trust. However, specific questions like “On a scale of 1 to 10, how much do you trust our brand/service to deliver on its promises?” and “How confident are you that our product/service will consistently perform as expected?” can help you uncover trust concerns.

Get specific feedback from online communities

With social media, you have the opportunity to create more intimate relationships with customers. Use online communities to post surveys, get direct feedback, and give customers a voice to tell you what they want from your business.

You can also track mentions of your brand to learn what customers are saying about your products unprompted.

Remember to maintain an active social media presence where you interact with customers.

Did you know that a 5% boost in customer retention can increase profits by 25–95%?

To learn your current customer retention levels and recognize improvement, you need a strategy to measure customer retention. Only then can you determine how much you have gained from your efforts.

Using a combination of methods is the most effective way to accurately measure your customer retention strategy’s success.

Calculate your customer retention rate

Your customer retention rate is the percentage of your customers (within a specific time period) who are repeat buyers—in other words, they are not buying your product or service for the first time.

To calculate customer retention, you need to record the number of new customers:

• At the start of the period

• At the end of the period

• Acquired during the period

For example, suppose you record your customer retention rate for each quarter. You’ll record the number of customers you have at the beginning of the year, how many customers you have at the end of March, and how many customers you’ve acquired during that time.

To calculate your customer retention rate, subtract the number of new customers from the total number of customers at the end of the period. Then, divide the result by the number of customers you started with.

Customer retention rate = (total customers at the end of the quarter – new customers) / number of customers at the start of the quarter

Your result will be revealed in a decimal value. Convert it to a percentage by multiplying it by 100.

Review customer feedback and customer data

Customer feedback is a vital source of information that reveals what you can do to improve the customer experience. It can also reveal the results of your efforts.

You can use results from surveys and reviews to guide your customer retention strategy and gather new information to measure your success. Positive changes in customer satisfaction surveys and your NPS indicate your customer retention strategies are paying off.

But, it’s not just your customer retention rate that can reveal customer loyalty. Tracking customer referrals and the number of customers participating in your loyalty program can unlock customer retention insights. Other metrics you can track include the customer churn rate and product returns.

Track financial results

Customer-centric companies are 60% more profitable than companies that aren’t. Increasing profits are a good sign that you’re doing something right in your quest to please customers.

You can also use the following financial stats to help you recognize increased customer retention:

• Repurchase rates: do your returning customers repurchase your products as expected? If return purchases are less frequent than you’d expect, try using a popup survey to gather feedback about customers’ infrequent shopping habits.

• Renewal rates: services on a monthly or yearly billing cycle provide valuable insight into customer satisfaction levels. Track renewal rates to learn if customers typically renew their services and to detect sudden increases or drops in renewals.

• Customer lifetime value: the customer lifetime value (CLV) is the total revenue your company can expect to earn from the average customer throughout their relationship with your business. This metric will give you insight into the frequency of customer services and how long they stay loyal to your company.

• ROI on referral and loyalty programs: referral and loyalty programs are an investment. By calculating your returns on new or improved programs, you can measure the success of your customer retention programs more efficiently.

• Churn rate: this is the percentage of customers who stop doing business with your company during a given period. A high churn rate can indicate issues with customer satisfaction or the need for improved retention strategies. Calculating the churn rate helps identify trends and areas requiring improvement.

Surveys are a great way to gain insight into your customers’ preferences and needs. You can learn valuable information about satisfaction levels with your products and the levels of service you provide.

You can use these examples of customer retention survey questions in their original format or adapt them to your company’s business model.

How would you feel if you could no longer use our products?

The answer to this question reveals whether your customers think your products are easily replaceable. It might reveal information about direct competitors or tell you whether your customers would have to make substantial adjustments to their lifestyle or workflow without your products. This will give you an idea of your strengths and weaknesses.

Which of our competitors did you consider before choosing us?

Gathering data about your closest competitors allows you to consider ways you may not be meeting customers’ needs. It also gives you insight into the top reasons you stand out in the market.

Were you able to reach your desired outcome with our tool? Why or why not?

This quickly gets to the core of customer satisfaction. The follow-up question provides clear data about ways you can improve your product or if customers need more guidance about using your products correctly.

How likely are you to recommend our product to others on a scale of 0–10?

This is the classic NPS question.

Referrals are the top indicator of customer satisfaction. Customers who become ambassadors are more likely to stay loyal to your business and help you reduce acquisition costs.

How well do our products/services meet your needs compared to your initial expectations?

This question helps gauge if the product or service meets, exceeds, or falls short of customer expectations, providing insight into the effectiveness of marketing and the actual user experience.