5 Market Factors That Affect Customer Retention

July 27, 2015 Russ Chadinha

 

One day, when you’re looking up a customer’s account to review their last few purchase orders, you notice that their order volume has been slowly declining over the past six months. They’ve also dropped some of the add-on products they used to buy from you every month. Could this be the start of a customer retention problem?

Picking up the phone, you call the customer to see what’s causing these changes. Your usual contact can’t be reached, so you leave a voicemail. Later, you leave another message. A week goes by. Eventually, your contact calls you back, and explains that they’ve decided to move to a dual-source supplier relationship. In other words, you’ve slowly been losing business to another supplier for months.

While slow erosion of this type is a customer-driven change, new competitive challenges could arise in your market for a variety of reasons. When these competitive challenges arise, they change your market — often quite rapidly, especially when there’s new disruptive technology.

 

Increase Customer Retention by Considering These 5 Market Factors


According to HubSpot, increasing customer retention by just 5% can lead to a 25-95% increase in profits. Furthermore, there is a 60-70% chance of converting an existing customer, compared to the extremely low probability of converting a new lead. Crazy Egg states that existing customers (that is, your retained customers) spend 31% more than new leads. It is clear that maintaining your existing customers is vital to increasing profits.
 
For these reasons, your customer retention and pricing strategies must be dynamic in order to negate the negative effects of various market trends. The top 5 market trends to consider include:
 
1. Redefining Strategic Direction
2. Deregulation and Rule Changes
3. Globalization
4. Expansion in Your Target Markets
5. New Technology
 
Let’s take a closer look at each market factor and how they can have a negative impact on customer retention.

Here are five major drivers to consider in your customer retention strategy:

 

1) Redefining strategic direction

Your customers need to periodically adapt and change direction to stay relevant in their own markets, just like you. When they change direction by introducing a new product or business model, they also look for new business opportunities and better ways to run the organization. These changes could introduce competitive challenges in your marketplace.

 

2) Deregulation and rule changes

If you’re selling to highly regulated industries and sectors, changes in their regulations could make it easier for other suppliers to compete with you. In general, deregulation tends to increase competition by eliminating rules about who is allowed to supply your customers, leading to a decrease in customer retention.

People have different opinions about the virtue of deregulation — for example, banking deregulation in financial markets — but it does happen periodically and tends to open the door to competition.

 

3) Globalization

In our increasingly global economy, companies face much lower barriers when entering new markets. This gives rise to new competitive challenges, especially in a large market like the United States, as international companies compete to gain a foothold.

It also means companies that offer localized solutions have greater opportunities to enter new markets. Everyone wants to gain a foothold in developing markets to take advantage of their growth, often resulting in severe competition.

 

4) Expansion in your target markets

When the particular areas your company services undergo vertical and horizontal integration, these changes drive growth requirements and could introduce competitive challenges.

For example, as consumer electronics manufacturers branch into offering services, they create competition to supply the services delivery business.

 

5) New technology

Breakthroughs in hardware, processes and conceptual models (such as cloud computing) have the potential to be highly disruptive, and the rate that technology advances is accelerating. New technology is clearly a driver of competitive challenges: It changes the playing field and the rules, and gives the advantage in customer retention to nimble companies on the cutting edge.

 

Stay Competitive with Regular Adjustments to Your Pricing Strategies

To stay competitive when your market is rapidly evolving, it’s important to regularly review and adjust your company’s pricing strategies for customer retention and differentiating your sales offers.

Ready to learn more about how sales effectiveness solutions help your company thrive in a competitive environment?

Download our complimentary e-book, “Selling Value: Increasing Customer Retention and Profitability”

 

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