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Does Retention and Customer Engagement Keep CEOs Awake at Night? Maybe it Should….

I read an interesting article on LinkedIn yesterday about a company that invested heavily in both time and monetary terms to develop a software product that helped HR functions record things like timesheets, holiday records and absences only to find that Excel did the same job pretty well and that keeping attendance records wasn’t something that kept HR Directors awake at night in terms of priorities.

It got me thinking about customer retention and customer engagement and whether or not CEOs lie awake at night thinking about it and worrying about it. I suspect most don’t – and I think that is also a reflection of the way in which CEOs and many businesses operate. My guess is that it’s increasing sales and reducing costs that keep them awake – focusing on these as the means to drive profitability and deliver shareholder value. But that’s exactly what improving the customer experience and increasing customer engagement does, it makes people stay longer and buy more. So shouldn’t more CEOs sacrifice their slumber to think about ways in which they can improve engagement?

One of the reasons they might not focus on retention and customer engagement is that the targets that most often predominate are profit and cost. If customer numbers are down and that’s affecting profit, it’s the sales target that usually changes to make up the shortfall. But an organisation can grow its stock of business in two ways – firstly by increasing sales and secondly by improving retention and customer engagement.

By retaining more customers, businesses do two inter-related things that help drive profit – they retain income and they avoid the costs associated with attracting new customers to replace the ones that have left. Improve retention and there is a double whammy benefit. For many organisations too, because of the costs of recruitment, customers don’t become profitable until maybe their second year. So organisations are gambling that they will replace known profitable customers with ones that will stay with them.

The same metrics are valid for organisations such as retailers too – where a good customer experience will result in repeat purchase. Having spent all that advertising money to get them to buy from you in the first place, its worthwhile making the experience one that will encourage them to come back time and again.

So why aren’t CEOs lying awake thinking about how to retain customers better and have them engage more with their companies – for many it’s too difficult to contemplate and certainly to put in place targets and having individuals responsible for delivering them. For others, increasing sales and reducing costs is ‘what they do’ and provided sales can be increased sufficiently to deliver the bottom line profit, then that’s what they will do.

For our part, we work with CEOs of organisations to help them understand not only the financial benefits of improved retention and increased customer engagement but also what they need to do in order to reap the benefits – creating alignment and customer focus throughout their organisations to ensure the retention and engagements are met.

So by focusing on improving retention and customer engagement, CEOs will most likely not have to lie awake worrying about delivering profitability targets and value to shareholders.

  • Paul Leadbitter

    Excellent post. I think there are actually three inter-related profit benefits of retaining customers: retained (and potentially growing) income per customer and reduced new business costs, as you have highlighted – PLUS the benefit of satisfied customers recommending the company and its products and services. New customers recruited through advocacy also tend to have much higher than average customer value.