Creating Customer Stickiness in Retail Markets

Holding on to customers is one of the biggest challenges facing business today.

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But the battle to reduce ‘switching’ involves more than giving customers points and a loyalty card. It requires a proactive and holistic approach that influences everything about the way companies engage with their customers.

The strategy has been described as creating ‘stickiness’ − and the glue that companies use needs to be stronger than ever.

From energy services to the weekly shop − why ‘switching’ is the word of the moment

  • The body that represents major energy suppliers recently launched its Energy Switching Guarantee − to make it easier for customers to change providers
  • A third of UK households have still never considered switching[1], despite a whopping SIX MILLION doing so in 2015[2]
  • 85% of broadband customers say they’ve switched providers at least once[3]
  • A record number of customers switched bank accounts in April 2016 − up 13% on March[4]
  • 24% of UK shoppers changed their main supermarket in the year to June 2015[5]

Responding to the switching threat

Of course, for every customer that considers switching supplier, there’s an opportunity for a new provider to sign them up. But even in these circumstances, the cost of acquisition is still greater than the cost of retention.

As a result, the most effective strategy to retain or grow market share and increase customer value is not to lose customers in the first place.

Making customers ‘sticky’ is, therefore, one of the biggest challenges (and also one of the biggest opportunities) facing B2C companies today.

Creating customer stickiness

Amid this growing trend to switch, companies are recognising the need to put in place pro-active remedial strategies. Even with millions of customers across all sectors staying exactly where they are (70% of energy customers are on their supplier’s default standard tariff[6]), companies must do more than simply taking advantage of this inertia.

Today, many utility suppliers are actively encouraging customers to sign up for more cost-effective deals before their existing ones expire, rather than allowing them to lapse into standard tariff territory, where the incentive to switch is greater.

This is also being driven by moves from the Competition and Markets Authority to identify all customers who have been on a standard tariff for more than three years and allow them to be contacted by other suppliers.

Others are introducing advanced value-adding technology, such as apps and smart meters, which enhance the customer experience and discourage customers from switching despite potential cost savings.

In other sectors, up-selling and cross-selling is increasingly common

Retailers such as Tesco, Sainsbury’s and M&S offer financial services, energy and mobile contracts, while media providers Sky, TalkTalk and Virgin Media are ‘bundling’ their services to deliver more value to their customers.

Today, 12 million customers have bundles of at least three services from a single telco provider[7], while the 1.5 million ‘quad-play’ households that take TV, broadband, mobile and fixed line telephone is expected to double this year[8].

All these examples are part of a focused strategy − to keep customers engaged for longer and increase customer lifetime value at the potential cost of short-term margins.

The role of customer data

Trying to keep customers engaged for longer has its challenges, not least because of the way individual customer data across products and services is often siloed within organisations. Customers want a seamless, personalised interaction with their provider − whether they are purchasing one service, a bundle of related ones or, increasingly, a range of seemingly unconnected ones (eg, online groceries and energy). Data management, therefore, is key to understanding their needs and delivering insight driven engagements.

Maximising lifetime value through Customer Experience Management (CXM)

CXM strategies recognise the ease with which customers can ‘switch’ and the increasing commoditisation of products and services that mean quality, specification and price are no longer such important differentiating factors.

CXM sets out a roadmap for retention or growth (focusing on existing customers or attracting new ones in a more fluid ‘switching’ environment) and seeks to maximise lifetime value by providing a positive customer ‘experience’ at every stage and every level of interaction.

This involves harnessing data to deliver insight-led actions, and integrating and optimising people, processes and technology. At the heart of CXM is a cohesive, omni-channel communication strategy that is focused on customer outcomes and enables two-way engagement with customers (across any channel or combination of channels, digital and physical).

[1] Competitions and Markets Authority, June 2016
[2] Ofgem
[3] Ofcom
[4] Bacs Account Switching Service, April 2016
[5] The Grocer, July 2015 (Research, TCC)
[6] Competitions and Markets Authority, June 2016
[7] CS Insight, October 2015
[8] CCS Insight, October 2015