The Psychology Behind Customer Retention and Loyalty

The Psychology Behind Customer Retention and Loyalty

August 3, 2021

Your customers are first and foremost to your business. If they need something, you do your best to provide it. If they have a concern, you always address it. Customer retention can make or break a business, yet some still miss big when it comes to building relationships and brand loyalty.

In fact, retention plays a much bigger role than you would realize.

sales chart-1

According to Invespcro, it costs five times as much to attract a customer than to keep an existing one...yet 44% have a greater focus on customer acquisition, versus only 18% that focus on retention.

So why is this? When increasing customer retention rates by 5% leads to a 25-95% profit increase, one would think there would be a greater focus on keeping customers around. Yet clearly, this is not the case.

The reason for this could relate to a misunderstanding of how companies understand the concept of "brand loyalty". Customers shouldn't be seen as a source of revenue but rather a network of mutually beneficial relationships.

Brands that have the best image and retention rates have some sort of identity that customers can relate to. Brand books are a good way to communicate this personality. But to get your image out most effectively, you're going to want to have everyone in your organizational network doing so.

Customers are by far the best way to communicate the identity of your brand because they are the ones interacting with it the most. When you compile all of their voices together, it becomes something so much more influential than anything your marketing or sales teams could deliver.

92% of individuals trust word-of-mouth recommendations, making it one of the most effective forms of advertising.

customer experience

The Best Customer Experience Creates Customer Retention

A survey of B2B companies in Adobe's 2020 Digital Trends Report disclosed that customer experience was the most exciting business opportunity of 2020. The rough start to this year provides an opportunity to show your customers you're there to stand by their sides.

According to HubSpot, 81% trust their friends and family's advice over advice from a business and 55% no longer trust the companies they buy from. This alone should scream opportunity for any business, when the majority of competitors have lost trust from their customers.

There's so much information available within our networks and at our fingertips, companies have lost their place as a credible source. Especially when so much new business happens through word of mouth or referrals. It's harder than ever to establish yourself as a trustworthy source in the corporate world.

For businesses, we need to make it our duty to treat active customers like family. Buyers trust people over brands and you have to ensure your customer experience reflects this.

Pro tip: Retention and loyalty strategies are important and should be tracked and reported on regularly—whether manually or through a custom app integration.

How Can You Turn Customers into Advocates?

There's numerous ways to check in with your customers periodically and turn them into an additional voice of your company. According to a report in the Harvard Business School Press, with just a 12% increase in advocacy, on average, companies can experience a 2x growth in revenue.

Gifting to Reward Advocates

gifting for retention

One of the biggest advantages of others advocating for your brand on digital channels is how far that message can reach. Especially if that customer is already an influencer, their network could contain hundreds, maybe thousands of other potential customers. Motivate them to give your company a shoutout with either a promotional offer or a gift!

Sending your customers an email sequence kindly asking them to review your product is one of the easiest ways to ask for a review. Automating this email into a sequence of 3 or 4 separate messages will give you a much better chance of getting the reviews you need.

Incentivizing recipients with something as simple as a $10 gift card will act as a lead magnet and drive more customers to the review site. If you have built a community around your product, that would be another great way to create advocacy.

Postcard campaigns asking for a customer to review via a QR code would be slightly more costly, but an even more personable way to ask. Direct the QR code to whatever review site you want the customer to go to, and ensure it is optimized for mobile devices as well. Again, some sort of incentive could be included in the design of your postcard.

Create Reciprocity

create reciprocity

It's no secret that most humans have a basic understanding of what it means to fairly give and take. This is essentially what reciprocity is: exchanging things with others for mutual benefit. Reciprocity is a key part of customer loyalty and should also play into your retention strategies.

In his book, Influence: The Psychology of Persuasion, Robert Cialdini calls reciprocation one of the six universal principles of influence and discusses why it's so imperative to leverage within a number of professions. From a customer relation standpoint, this makes total sense when the #1 reason customers switch to another brand is feeling unappreciated.

There's actually an underlying subconscious reason why humans feel the need to reciprocate actions. Cialdini refers to this as the “rule of reciprocation”, which is the idea that humans naturally feel compelled to repay accordingly when given something.

His "rule of reciprocation" sounds similar to what many consider value to be - providing more than what someone pays for. That is exactly how organizations need to view their relationships with their customers.

HubSpot research has found that 93% of customers will make repeat purchases with customer who offer excellent customer service.

Communicate Success Stories

Customers working for you as an advocate are by far the most transparent and authentic way to get your brand's message out there. However, effectively communicating case studies and success stories are another part of the picture.

Renowned cognitive psychologist, Jerome Bruner, stated that we are 22 times more likely to remember a fact when it's been wrapped in a story.

Work with some of your highest performing customers to tell their story to your target audience. Case studies can be some of the best pieces of content within an organization, so take your time ensuring all the data is on-point and the visuals reflect brand parity.

Focus on Quality

According to Sales Hacker, gifts with a perceived value under $11 are most likely to reflect poorly on response rates. While the value a customer provides may not be quantified, do your best to match it in whatever sort of reward program you offer.

Again, offering some sort of personalized incentive to the customer you have in mind will probably be the best way to win their participation. Chances are, if you're going to choose one of your highest performing customers, they're going to be a significant source of revenue.

After all, the Pareto principle suggests that 80% of your revenue is generated from 20% of your customers. Don't be a cheapskate and reciprocate at least the same value with your customers that they've given you.

Surprise Your Customers

surprise reciprocity

The element of surprise goes far beyond birthday parties or military tactics. It's actually another psychological trigger than can play into your retention and loyalty strategies.

Surprise is the foundation of curiosity and learning. It's one of the most engaging and personable ways to interact with someone because surprises reflect the fact you were courteously thinking about them.

To really enhance relationships with your customers, surprise them periodically with discounts, gifts, loyalty programs, etc. If you're a SaaS company then consider the timeframes for when the subscription ends for each customer. This is a great opportunity to keep your customers around.

Discover our blog where we explore the significance of client relationship skills and how mastering them can lead to better business outcomes and satisfied customers.

Reward High Performers

Another tactic that will help tie all your retention efforts together is to give the best rewards to your highest performing customers. Doing so publicly might create an additional layer of competition, yet won't work in all cases.

Creating a community around your business is one of the best ways to build a collaborative customer base. Engaging with customers on review websites or social media to answer their questions can guide the direction of your product.

For your select group of highest performing customers, think of something creative to award them with. Even if it's on a quarterly basis, giving your customers the idea that there's something on the line will strengthen your customer relationships.

When it comes to choosing an award, you can even start by creating your own that reflects success of certain customers. For instance, Outreach came up with their own called the Nucleo Awards that are specifically for customers who achieved excellence using their sales platform.

Honoring some of your highest performing customers will create a sense of recognition that can very likely help your retention efforts.

Create Mutually Beneficial Value

At the end of the day, building loyalty and retaining customers is centered around reciprocating the value they provided for you. Companies who don't empower their customers will lose business to competitors.

On the flip side, strengthening your retention strategies can boost profits significantly. Reciprocation won't only keep customers around, but also lead them to make additional purchases.

Powerful customer relationships will facilitate new business growth like you wouldn't believe.

Patty DuChene
Patty DuChene

Patricia DuChene (also known as Pat, Patti, Patty, Tricia, and PD) is the Vice President of Sales at Postal, an Offline Marketing Automation platform that generates leads, increases sales, and improves customer retention. Prior to joining Postal, Patricia was the Vice President of Int'l Sales & Managing Director for a work management software company called Wrike, where she built out client facing teams in Dublin IRE, Melbourne AU Tokyo JP, and Kyiv UA. A native of the 805, she was thrilled to join the Postal team with the promise of delivering an authentic, scalable engagement platform in San Luis Obispo. She is a passionate advocate for women in technology and takes an active approach when encouraging women to consider careers in technology. When she isn't in the office, Patricia can be found hiking with her husband and princess pug, Hammond von Schnitzel.

Want to increase your customer retention rate by +27%?
That's what Postal clients achieve on average after 3 months using the platform.
Increase My Customer Retention
Want to increase your customer retention rate by +27%?
That's what Postal clients achieve on average after 3 months using the platform.
Increase My Customer Retention