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Customer Retention: Definition, Benefits & Strategies

Last updated: Dec 20, 2023

Customer Retention: Definition, Benefits & Strategies
Cover image: Illustration of a customer retention strategy to attract new customers.

What is Retention?

Retention is one of the business strategies that can help strengthen your customer database, enhance business authority, and optimize the customer experience.

Retention refers to retention or storage. Thus, customer retention is the activity, effort, and strategy implemented by a business to retain customers.

Implementing customer retention strategy can encourage customers to make repeat purchases and not easily switch to competitors in your business niche.

Definition of Customer Retention According to Experts 

To further grasp what is customer retention, here are some explanations and common definitions according to experts.

  • Singh and Khan (2012): Customer retention is a marketing activity carried out from the beginning of the customer journey to retain customers.
  • Farquhar (2005): Efforts and ways to increase sales based on customer satisfaction so that they keep coming back.
  • Schiffman and Wisenblit (2015): All efforts to turn individual customer transactions into long-term and sustainable relationships.

Why is it Important?

Running strategies to attract new customers must be ongoing. However, your business should not overlook the existing customer base. 

Businesses also need to make an effort to maintain interactions with existing customers to enhance their loyalty.

In some specific conditions, prioritizing existing customers is believed to be a more effective step in increasing revenue or business revenue. 

This is because you no longer need to explain brand identity and business USP one by one or engage in persuasive education from the beginning.

With this retention strategy, you can also save business budget in the marketing plan by minimizing expenses for digital campaigns and other brand awareness efforts.

Benefits of Customer Retention Strategy

Now that you understand what is retention, you must know why this strategy is necessary for every business. To expand your knowledge, explore various benefits of customer retention more comprehensively in the explanations below.

1. Maximizing Business Profits

This strategy aimed at retaining existing customers and making them loyal to your brand as existing customers are more willing to spend and pay higher prices than new customers who are still exploring the benefits of your products/services. 

This is because they have built trust in the business and are satisfied with the products or services you provide. 

Therefore, by retaining existing customers, businesses can increase their revenue by selling more products/services to existing customers.

2. Increasing Customer Loyalty

This strategy also include how businesses should treat their loyal customers. If this strategy is executed well, your business has a high chance of gaining customer loyalty. 

Customers who feel well-treated and valued by a brand generally tend to be more loyal and will choose to subscribe rather than try to find alternatives. 

In a highly competitive business environment, customer loyalty plays a crucial role in creating sustainable relationships to contribute to income stability for the business.

3. Budget Savings for Promotion/Campaigns

As you may realize, the largest portion of the budget is likely to be allocated to promotions or digital marketing to attract new customers. 

However, the advantage of using a customer retention strategy is that you can save a portion of this budget.

Maintaining existing customers tends to be more efficient than acquiring new ones. Customers who have been well-treated by a brand typically do not require promotions to continue shopping. 

Thus, businesses can allocate their resources more wisely, reduce promotional costs, and achieve significant results by retaining a loyal customer base.

4. Maximizing Repurchase

Repurchase or repeat purchases can occur when you optimize this strategy. Because retention involves efforts to retain existing customers through personalized strategies, the likelihood of customers making repeat purchases can increase rapidly.

With the right strategy, you can make customers reluctant to explore competitors because they already feel satisfied with your products/services.

Retention Components

In general, there are several components that form the basis for calculating the retention rate, including:

  • Referral: Increase customer engagement with programs such as games, collecting points, and much more.
  • Customer Loyalty: Rewarding customer loyalty in the form of promotions or vouchers.
  • Insight Data: Assisting businesses in designing retention programs by analyzing customer segmentation in terms of preferences and purchasing behavior.
  • Personalized Interactions: Businesses must be able to optimize personalized interactions based on customer relevance.

Customer Retention Strategy 

If you are trying to maximize business revenue through empowering customer loyalty, here are some strategies that can be applied.

1. Know Your Customers Through Research (Customer Research)

One way to retain customers is to understand your target customers first. Know their persona, customer journey, experiences, preferences, and purchasing styles more comprehensively. 

By researching these aspects, you will better understand the right way to build a positive relationship with customers and foster their loyalty.

2. Responsive to Complaints

Receiving complaints is very common and can be experienced by any business. To retain customers and prevent them from switching to competitors, you must be able to handle complaints appropriately. 

Ensure that you respond promptly and provide solutions so that customers are not disappointed with your service because customer satisfaction is the main determinant of their loyalty.

3. Optimize Quality of Products/Services

If the quality of your product/service is poor, customers will undoubtedly seek more promising alternatives. 

Therefore, one of the main factors that can support retention is the quality of the products/services you offer.

4. Follow Up with Potential Customers

Customer retention strategy can be maximize by maintaining communication. To keep communication ongoing, you can use follow-up techniques by asking about users' experiences with your product/service.

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