In small business, retaining customers is just as important (if not more so) than finding new customers. Loyal customers don't just increase the money in your bank account, they become brand advocates who drive organic growth through word-of-mouth marketing.
But not all customer retention practices are effective – and some can actually backfire. Understanding which practices to use and which to avoid can help you build a strong customer base that drives long-term success. Let's look at three customer retention strategies to steer clear of.
1. Overly aggressive loyalty programs
Loyalty programs are an effective way to bring customers back. A report by PYMNTS found that nearly 8 in 10 consumers have at least one subscription, membership, or loyalty program. But, overly aggressive loyalty programs can bite into your bottom line and even drive customers away.
Requiring excessive purchases to earn discounts or bombarding customers with constant texts and emails can make them feel overwhelmed and pressured rather than more loyal to your business. Instead, design a balanced program with achievable rewards and gentle reminders. For example, offering a free upgraded service or product after five purchases or $5 for every $100 spent is achievable for most loyal customers.
2. One-size fits all marketing messages
We're exposed to hundreds or maybe even thousands of ads every day from social media, streaming services, and our email inbox. Most consumers are tired of being bombarded with ads -- especially ones that aren't relevant to them.
This is not to say you shouldn't advertise at all. Rather, it means using marketing carefully and personalizing your messaging. Instead of bombarding your entire email or phone number list with every ad, use data from your CRM software to build more personalized marketing campaigns.
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For instance, you might send every person who purchased a tent in the last year an email campaign about your new camping supplies. People who bought running shoes might see an ad on social media about your new running shorts. Use customer data to segment your audience and you'll spend less money and see better marketing return on investment (ROI).
3. Excessive discounts
As a small business, there's a good chance you're competing with larger companies with much deeper marketing budgets. You might assume the best way to compete is to price your products or services lower -- and studies do show that discounts work. Capital One reported that 54% of consumers can be influenced to make an impulse purchase with a discount.
But discounts can also backfire. Constantly offering discounts means your profit margins are smaller. Consumers might also assume your product isn't actually worth what you usually charge for it and will always look for a discount.
Instead, offer dollar-off amounts rather than percentages off, like $10 off a purchase of $100 or more, rather than 10% off. Several studies suggest this is more effective at increasing purchases. And don't offer discounts for every purchase -- save them for special occasions like holidays, loyalty program members, or new product launches.
Too often, business owners go all in on strategies with a "more is better" mindset. When thinking about customer retention, aim to deliver value instead. Ask your customers what they actually want and use those insights to build a loyal customer base that keeps coming back.
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