A customer is for life, not just for Christmas

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Research reveals the challenge retailers face in prioritising new customers over existing customers

Retailers are more focused on acquiring new customers than retaining loyal customers, despite acknowledging that the latter are more profitable in the long run.

New research from SMG, a customer insight agency, shows the viewpoint of 280 senior level decision makers and C-level management throughout the retail sector from household names. The results revealed that 42 per cent of retailers find it more challenging to retain current customers and identify that product, service and staff availability are the biggest factors in helping to retain current customers and ensure continued customer loyalty.

These results come as a surprise, as during this tough economic climate, especially in the build up to Christmas and inevitable VAT changes, now is the time for retailers to identify the key drivers of customer loyalty, really understand them, and turn a first time visitor into a brand ambassador and more profitable customer.

Based on the research, retailers' opinions vary on what defines customer loyalty, how to drive it and its value, in three key areas

• How to spend the marketing budget
• 'Refer a friend' incentives
• Identifying the biggest impact on the customer experience

How to spend the marketing budget

Considering the fragile state of consumer confidence following the announcement of the government's spending review last month, the imminent rise in VAT in January 2011 and the expected Christmas rush, keeping customers satisfied has never been more important. Nevertheless, the research reveals that next year over half of retailers surveyed will be spending more of the marketing budget on acquiring new customers, increasing to 64 per cent in 2015. These results come as a surprise as 63 per cent of those surveyed acknowledge that existing customers are more profitable.

Jeremy Michael, managing director, SMG UK comments, "With Christmas around the corner, it is now even more important to turn each new customer into a loyal one and ensuring that their first visit encourages them to return and more importantly recommend."

'Refer a friend' incentives
At least 55 per cent of retailers are prepared to spend more money on acquiring new customers but are not committing enough resources to looking after its current customers and increasing customer loyalty.

The best indicators of customer loyalty are increased number of visits (37 per cent) and creating brand ambassadors from existing customers that recommend to friends, family and peers (31 per cent).

However, in practice only 23 per cent of respondents understood the potential financial benefits of recommendations and were actively incentivising existing customers to 'refer a friend' to help acquire new customers.

Identifying the biggest impact on the customer experience
Despite anxiety over public spending, the data shows that only 20 per cent of retailers believe that cost has a negative impact on the customer experience.

Retailers are more concerned about delivering a high level of customer service and 76 per cent of respondents highlight that product, service and staff availability and till queuing times are the biggest causes of customers walking away before completing their purchase. This demonstrates a match in understanding of how to retain current customers as 65 per cent recognised that product/service availability is the biggest factor in ensuring customer loyalty.

Dave Poole, retail operations manager, Pets at Home commented that, "Attracting new customers in new locations is vital but with both new and existing customers what remains important throughout is the in-store experience – it is this that will create and improve customer loyalty."

The research highlights the need and importance for retailers to understand the difference between customer satisfaction and customer loyalty. Without this level of understanding, retailers will not be able to deliver the necessary and expected level of customer service that will help them reap the rewards and financial benefits of its brand ambassadors.

Other key highlights

• Nearly half of retailers acknowledged that polite and helpful staff can turn a negative customer experience around
• 41 per cent identify that level 3 (generally satisfied) is the level that a customer is loyal. This is from the five point scale where level 5 is completely satisfied and when a customer will become a brand ambassador and most likely to return and recommend.*
• Senior level management applies the most pressure to drive customer loyalty and acquire new customers
• The majority of retailers (42 per cent) use mystery shoppers as the chosen method of monitoring customer feedback

*From SMG's database of 100 million surveys that identifies that customers who score 3 out of 5 are not actually loyal and even those that score 4 (satisfied) are very open to competitors. It highlights that retailers need to aim for scoring 5 out of 5 to ensure customer loyalty.

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