Customer retention must be a top priority for leaders of any company wanting to remain competitive. An effective customer retention strategy should support the company to maintain a healthy stable of loyal customers and bring in new customers. Generating repeat business is critical: McKinsey’s report on customer acquisition states (link resides outside of that companies need to acquire three new customers to make up the business value of losing one existing customer.

Customer retention has become more difficult in recent years

Working against this goal is the fact that the customer journey is more complicated today; it’s harder to meet customer expectations and keep current customers. The IBM Institute for Business Value CEO Guide to Generative AI for Customer Service found that the majority of service professionals (60%) (link resides outside of have said that customer expectations have increased since before the pandemic.

Organizations that succeed at customer retention will benefit by encouraging customer loyalty. Those that understand the importance of customer retention will invest in the necessary customer experience management. Retention is best achieved by overcoming barriers to switching, maximizing the value of products and services, meeting customer expectations and solving customers’ pain points. It is achieved through a mix of customer service, marketing, customer success and product development.

Customer retention today requires a mix of human operational discipline, human ingenuity, and technological applications, especially artificial intelligence (AI).

Steps to create an effective customer retention strategy

Effective customer retention strategies begin the moment a first-time customer makes a purchase. It is incumbent upon the company to optimize that customer’s experience to encourage repeat customers and grow a healthy customer base.

Organizations should design initiatives that are either company-led or customer-led to encourage brand loyalty and word-of-mouth. The goal is to activate first-time buyers and then keep customers from switching to a competitor. Some of the steps to building an effective customer retention strategy are:

1. Make an excellent product

Ultimately, the initial battle for customer loyalty depends on whether the product or solution they buy directly or from a retailer is worth the money they spent. The calculation is that simple. Companies need a steady mix of existing and new products that meet their customers’ needs or address customer pain points. The listed customer retention components will be less effective if customers immediately regret their purchases.

2. Perfect an omnichannel marketing strategy

Companies can reach initial customers through a robust omnichannel marketing strategy, which creates personalized experiences. They need powerful messages and strategic targeting in their marketing to attract new customers in the first place. That way organizations can target existing customers across various channels, reminding them of their solutions and encouraging those customers to upgrade or purchase new ones. AI and other technologies will make omnichannel marketing even more powerful today and in the future.

3. Enrich the customer experience (CX)

Effective customer retention programs are only possible if the overall customer experience is firing on all cylinders. They need a great onboarding strategy to drive customer happiness from day one. Next, they need to keep that marketing engine going for existing customers using strong customer engagement initiatives. Having them see marketing messages reinforces their interest in the products.

It is critical to collect customer emails and send them a steady cadence of product news, tips and offers to keep them engaged with their existing products and the latest from the brand. Companies with ecommerce offerings should make it simple for existing customers to purchase these new products, thus continuing the cycle.

4. Collect customer feedback

Collect, analyze and distribute customer data through reviews and surveys. It’s also important to track and analyze social media conversations about your brands. Not every customer will contact a company directly. By tracking what people say online, a company can follow up and solve the customers’ issues. By doing so, it demonstrates it hears customer complaints and cares about remediating them.

5. Prioritize customer support

Customer support teams are an invaluable part of customer retention. If something goes wrong with a customer’s purchase, the customer support—or customer care—team must step in to fix the problem. Keeping customers happy and willing to buy a company’s products requires that company to respond to issues immediately. The company should also introduce self-service tools to help customers who prefer to find answers on their own.

6. Embrace AI

Companies have a wealth of new technologies that they can use to increase retention. Companies can use artificial intelligence (AI)-powered tools like chatbots and customer relationship management (CRM) systems.

For chatbots, they can use generative AI to provide more powerful answers to users and natural language processing (NLP) to decipher customer inquiries and provide automated responses.

For CRMs, they can use AI and machine learning to automate the retrieval and analysis of customer data they’ve collected. Large Brazilian bank Bradesco turned to IBM Watson® to personalize its customer service interactions. IBM trained Watson on 62 products and it can now answer 283,000 questions a month with a 95% accuracy rate and only 5% requiring further assistance from a human.

7. Invest in customer success teams

This investment is especially important for companies that sell either as-a-service solutions or high-cost goods or services. Customer success works directly and proactively with customers to ensure that there is high customer satisfaction from their products or services. They provide best practices for customers and solicit feedback for product improvements.

If the company sells digital products, they can track customer usage and increase outreach if the customer has decreased usage, which is a sign of dissatisfaction. For products or solutions that are renewed annually, customer success teams can work in tandem with sales teams to secure a commitment before that renewal date.

8. Communicate mission and values

Many customers, particularly millennials and Gen Z buyers, are more invested in an organization’s mission and values. Organizations with strong missions or values should spend time and budget on communicating their perspectives through advertising, direct-to-consumer messaging and customer engagement.

This communication is especially important if an organization’s prices are higher than the competition. Knowing they’re supporting an ethical organization that gives back to their communities, for instance, will make it harder for values-driven customers to pick a competitor that does not share those perspectives.

9. Make it easier to make returns or get refunds

Customers can request refunds or wan to exchange products for various reasons. Organizations that make this a difficult process may experience short-term benefits (not having to subsidize the cost of that product). However, they will very likely lose that customer’s loyalty and eliminate the possibility of selling them more products in the future. Organizations interested in maintaining long-term customer loyalty should take the temporary hit for long-term success.

10. Track customer retention metrics

Customer retention initiatives all produce valuable insights that companies can use to recalibrate their approaches and establish key performance indicators (KPIs). At the top level, they want to know the number of new customers and the number of customers over a period of time. First, they should identify the date range they want to track (for example, one month, six-month, one year). They should track how many customers they have at the beginning and end of the period.

Doing so can produce important metrics like customer retention rate (CRR) and customer churn rate (CCR). While every company is different, Salesforce recommends aiming for a CRR rate of 85% (link resides outside of By adding in information about purchasing lifecycle of those customers, they can also identify customer lifetime value (CLV) and net dollar retention (NDR). They should also track net promoter score (NPS).

11. Use customer loyalty programs

Encouraging repeat purchases sometimes requires a company to reward people for their patronage. A customer loyalty program can incentivize customers to buy more from a company. Another option is to create a customer referral program where current customers have incentives for introducing new customers to the company.

Why customer retention strategy matters

Customer retention is a necessary component to growing a company’s bottom line. Happy customers are prone to make repeat purchases over a longer period of time, driving “80 percent of the value creation achieved by successful growth companies,” according to McKinsey (link resides of

Prioritizing and excelling at customer retention ensures that a company has a healthy revenue foundation and can focus on supercharging growth. They can achieve that through recruiting new customers and up-selling or increasing the volume of products purchased by existing customers.

Happy, repeat customers are also more likely to share their experiences with their social networks. Word-of-mouth recommendations and testimonials can bring in new customers, improve brand recognition and reputation, and increase the efficacy of marketing efforts while decreasing costs. Therefore, customer retention should be a key component of any business strategy.

Customer retention solutions

A Forrester Consulting study of the financial impact of IBM watsonx™ Assistant™ on organizations’ customer service found a three-year 370% ROI and cost savings of $6.00 per contained customer conversation.

IBM iX® helps the world’s most influential companies create experiences, products and services that reinvent their relationships with customers and employees. IBM can help modernize customer and field service operations with data and AI so companies can offer great customer experience, drive revenue, improve customer retention and maximize business value.

Learn more about IBM watsonx Assistant for customer service Subscribe for customer & employee experience updates
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