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How Focusing on Your Customer Retention Will Improve Your Product Experience and Lead to Higher Profit

How Focusing on Your Customer Retention Will Improve Your Product Experience and Lead to Higher Profit

  • Product Led Growth /
  • Product Metrics /
  • Product Strategy /

Jonathon Hensley

Every product initiative needs to contribute to driving one thing, customer lifetime value (LTV). One of the most powerful ways to succeed in fulfilling customer lifetime value is to focus on customer retention. 

As a product leader, you might have experienced this all too common scenario: A product initiative is established as strategically important to improving the customer experience and solving for the next thing on your roadmap. But quickly, it veers away from unified customer and business objectives, and simply becomes about tracking metrics or delivery of a feature versus a well-defined outcome that moves the product and business forward. Time passes slowly, higher customer acquisition costs mount, customer churn continues, revenue and profitability stagnate. Big, strategic goals devolve into subjective improvements and incrementalism. Unearthing useful insights that facilitate product evolution, informed prioritization, and market relevance is sacrificed. If you have experienced anything similar to this you are not alone. 

The importance of aligning your product initiatives with customer lifetime value and improving retention is accentuated by the fact that the competitive landscape is rapidly expanding. It is becoming increasingly more difficult to differentiate your product. Simultaneously, there is a sea of change to navigate in customer behavior; both the direct to consumer and business-to-business markets. 

It’s in this environment that customer retention has become just as important as customer acquisition. In a Harvard Business Review article, it was cited that acquiring a new customer is anywhere between 5 to 25 times more expensive than retaining an existing customer. 

So where does it all go wrong? Lack of consistent effort to improve the customer experience that drives retention.

Most customer retention efforts fit into the following categories:  

  1. Understanding your customers and their needs
  2. Developing intuitive and transparent customer experiences
  3. Product engagement and feature adoption  
  4. Value multipliers that reinforce retention 
  5. Turning friction into opportunity through service recovery

Higher customer retention leads to higher profits, and it takes the delivery of a great customer experience to achieve.

Five Customer-Centric Approaches to Increasing Customer Retention

Here are five key customer experience tactics you can use to improve customer retention, increase lifetime value, and ultimately deliver better outcomes. 

1. Understanding the needs and motivations of customers 

Understanding customers is fundamental to your business, product innovation, and to continuous improvement. Now that we have defined customer retention and the lens to apply when developing your retention strategies, the next step is to understand not just what customers do, but why they do what they do. Behavioral insight is one of the most valuable assets you can develop. It helps to understand the motivations behind people’s actions and the correlation to outcomes. It helps you empathize with customers. It helps you understand the true scope of the challenge that needs to be addressed and the requirements to create value. Here are some questions to ask yourself in determining what could improve customer lifecycle and retention: 

  • What behaviors are leading indicators of product commitment? 
  • Is there friction in the experience that if removed would help a customer move through each stage of commitment? Is there friction in the experience impeding progress through each stage of commitment for the customer? If removed, does it improve the outcome?
  • What contextual and environmental influences impact their trust in your solution?
  • What behaviors are leading indicators of attrition? 
  • Are these variables you can control to recover customer commitment and retain their business?

2. Developing Intuitive and Transparent Customer Experiences 

Some businesses make it exceptionally difficult to do business with them, others make it effortless. The ease with which a customer can begin, adopt, or even rescind their engagement is key to driving retention. It may sound counterintuitive, but when you make canceling your project agreement easy, you simultaneously create an opportunity for customer education and service recovery which would be shot down in any other scenario. We first touch on this when looking at churn rate as a predictor of retention. 

“At Google we have a team whose job it is to make it as easy as possible for users to leave us. We want to compete on a level playing field and win users’ loyalty based on merit. When customers have low barriers to exist, you have to work to keep them.” How Google Works by Eric Schmidt and Jonathan Rosenberg

Consider if your product flows are clear, easy to follow, and if you’re communicating user progress effectively. The human brain seeks ways to organize and simplify complex information, even when there is not a pattern. People are more likely to take action when complex activities are broken down into smaller tasks.

Ask yourself if your product has the necessary triggers in place to help the user progress forward, reinforce their motivations, and encourage them to take action. People are more likely to engage in activities in which meaningful achievements are recognized.

Make sure you have incorporated feedback loops to support the intended user behavior so they can get the maximum benefit from your product. People are more engaged by situations in which we see their actions modify subsequent results, and are correlated to the benefits.

3. Product Engagement and Feature Adoption 

The level of product engagement is directly linked to customer retention. According to a benchmarking study conducted by Pendo, after three months the average product has 28% user retention, while best-in-class organizations see 54% of users retained over the same time period. That equates to a 92% increase in product performance by best-in-class organizations that directly translates to increased customer lifetime value. 

Product engagement can be measured in many different ways but the common denominator when you boil it down is a focus on value-driving activity. For example, focusing on time in an app might make sense for Netflix but for another product provides little to any actionable insight. For example, are they in the app because they are accomplishing more or because accomplishing the job at hand is complex or confusing? Less time in the app might be an indication that your solution is meeting their needs more effectively than any other. 

Instead, shift towards identifying areas of opportunity based on where users concentrate their time and efforts within the product. If the user focuses their attention on a small percentage of the product’s overall feature set, it can be a sign that users may only be familiar with a few core workflows and features.  Perhaps they haven’t explored other high-value areas of the product or aren’t even aware of them. Often, this scenario is an indicator that the onboarding experience is ripe for improvement. The onboarding experience is frequently a leading cause of churn, not just the first-time use of the product.

Conversely, if you see users whose usage is broadly distributed across the product feature set, it can suggest that they are finding more value over time as they use the product. With distributed usage across the application look for the frequency of your largest value drivers and identify areas of opportunity for improvement or reinforcement. Is the value sustainable or does it diminish over time?

  • What are the core features that are most important to delivering customer value? 
  • What are the most used features and how do they compare to the core features? 
  • What are the key user flows and outcomes that users need to achieve to recognize the value of the product and increase their level of commitment? How do those features, user flows, and outcomes evolve throughout the customer journey (ie. lifecycle)?
  • Does customer behavior align with expectations? Where is there misalignment? 

4. Value Multipliers that Reinforce Retention 

Clearly defined value multipliers are essential to your product and business. Value multipliers are the attributes of your product that amplify the user benefits, virality, and outcomes. Value multipliers help propel a product from a nice-to-have feature to becoming a key, integrated part of success in a user’s daily routine. Value multipliers can come in many forms such as: 

  • Product stickiness whereby the value drivers for different user types are emphasized as they align with their behavioral patterns putting focus on the key interactions that encourage more habitual usage. For example, things like personalized products such as Amazon. 
  • Network effects whereby the value or utility a user derives from the product increases based upon the number of other users and compatible products. For example, think of collaboration products like Slack.  
  • Value exchanges whereby the value or utility comes from automating or reducing the work of one or more people involved resulting in significant time savings and speed. For example, think of facilitation products like DocuSign.  
  • Self-service whereby the value drivers come from scalability that makes it easier for customers to educate, assess, adopt, customize, or resolve issues related to the product. For example, think of convenience products like Lyft. 

Value multipliers can also be an intricate aspect of opening up-sell and cross-sell opportunities. 

5. Turning friction into opportunity through service recovery

Even the best plans can run into problems, which may frustrate customers. This is where service recovery comes into play. Service recovery means the methods and steps businesses take to fix customer problems or complaints quickly and efficiently. No company is perfect, but the way a company responds to mistakes can greatly affect customer loyalty, brand reputation, and keeping customers using the product. 

Whether you offer self-service or facilitated options, service recovery must address both the emotional and functional needs of the customer. When a problem is solved in a way that pleases the customer, they feel appreciated and listened to. Fixing a problem quickly and openly shows customers that the company takes responsibility for its mistakes. This helps build trust and assures customers that their concerns are taken seriously. Service recovery also provides useful information about where a company can make its processes, products, or services better. By paying attention to customer concerns, businesses can provide more value, set themselves apart from competitors, and create a better overall experience.

  • How should you respond when a customer raises an issue?
    • What is the importance of promptly acknowledging their concern?
    • How can you demonstrate empathy and understanding to the customer?
  • Why is time a crucial factor in service recovery?
    • How can responding promptly to customer issues prevent frustrations from escalating?
  • How can you personalize your response when addressing customer concerns?
    • Why is it important to address the customer by name?
    • In what ways can personalization showcase that you value the customer’s individual experience?
  • What role do employees play in service recovery?
    • Why is it beneficial to empower employees to make decisions and take action?
    • How does empowering employees prevent customers from feeling bounced around?
  • Why is it essential to follow up after the initial resolution of a customer issue?
    • What is the purpose of ensuring that the customer’s issue has been fully resolved?
    • How can you confirm that the customer is satisfied with the outcome?
  • How can you turn each service recovery instance into a learning opportunity?
    • Why should you analyze the root causes of the problem?
    • What steps can you take to prevent similar issues from occurring in the future?

Service recovery isn’t just about fixing problems; it’s about turning challenges into chances to build stronger relationships with customers.

Take the Next Step to Make Customer Retention a Priority

Aligning your customer retention strategy and tactics with your organizational priorities has never been more imperative than it is in today’s business environment. The impact of increasing customer retention and lifetime value can be the difference between just getting by or scaling up to realizing the full potential and scale of your product or service. Best-in-class organizations across industries and around the world are focusing on it every day of the year. Customer retention is one of the greatest predictors of success.  It can propel your business to the next level. 

Forward. Digital. Thinking.

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