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Future of Retail — The CFO Issue


CHOOSE LOYALTY OVER RETENTION The trouble with focusing on customer retention is that it’s short term. If this sounds a bit backwards, it should – after all, the whole point of retention is to create long-term customers, right? However, businesses tend to do this by pouring all their effort into making the next sale. When a retailer spots a group of customers


who are about to lapse, they quickly create a campaign to re-engage them. As soon as a customer responds by making a new purchase, they breathe easy again: we’ve retained them! ...Until a month or two later, when they notice these hard-won customers haven’t purchased since. And then the cycle starts again. As businesses, our standard approach to


customer retention is flawed. We want long- term customers, but we’re only looking as far ahead as their next purchase. And the method of winning that purchase


often centres on price – it usually involves sending about-to-lapse customers a money- off voucher to seduce them into shopping again. This breeds discount-focused behaviour among our (potentially) most loyal and valuable customers. No wonder retention efforts aren’t delivering ROI. The solution is a shift in focus, from retention


to loyalty. Simply holding onto your customers isn’t enough. A satisfied customer (or a discount-hungry customer) will stick around and continue purchasing – as long as they’re still satisfied. Loyal customers, though, are more


dependable. They’ll stick around even when things go wrong. They’re also more likely to become advocates for your brand, and to try new products or services. Truly loyal customers lead to stable,


continued revenue. So how can retailers grow this long-term loyalty in a profitable way?


THE TROUBLE WITH DISCOUNTS When retailers seek to grow customer loyalty, the standard approach is to put a rewards programme in place. That programme usually looks something like this: customers spend a certain amount (or visit the retailer a certain


As businesses, our standard approach to customer retention is flawed. We want long-term customers, but we’re only looking as far ahead as their next purchase.


number of times) and receive a discount on their next purchase. Whether through points or stamps, the concept is the same – enough transactions and the customer gets to save some money. Now there’s nothing inherently wrong with this


approach – most successful schemes still use this model at their core. But the basic points-for-discount schemes that most retailers employ leave both customer and brand wanting more. The problem is, it’s a relatively simple concept to


replicate. A competitor can easily launch a similar scheme (that offers a slightly better discount or lower reward-


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