Drivers of Customer Retention: Is it Just Satisfaction?

What Drives Customer Retention: Is it Just Satisfaction?

In our quest to measure the “happiness” of the customer we are often led to focus solely on customer satisfaction as a predictor of retention. But in my years of researching drivers of customer retention, I’ve found that customer satisfaction doesn’t paint the full picture.

Why Customer Satisfaction Does Not Tell The Whole Story

Here’s one example from the auto industry:  JD Power is considered the benchmark for satisfaction (sales, service) and quality. Automakers make it a point to perform well in those rankings. At first glance, when you look at top selling performers such as Toyota, Lexus, and Honda, they perform well on JD Power’s satisfaction metrics. That would seem to confirm satisfaction is the way to go. But what happens when you compare satisfaction figures with retention rates?

If you were to plot satisfaction and retention figures for each automaker on a graph, you might expect something close to a 1:1 correspondence.

Surprisingly, that isn’t the case. One example is Jaguar. The company has consistently scored well on sales and service satisfaction but suffered poor retention. If the company were to focus solely on the satisfaction numbers, Jaguar would have been given a false sense of security. The other factors to pay attention to in this case were depreciation, maintenance, long term reliability, and competitive offerings. But the most important factor was Jaguar’s relationship with the service department and particularly its service advisor.

How does this translate to early-stage technology companies? Satisfaction remains important, but the lessons of the auto industry still apply.

So what are possible drivers of retention in the technology space?

1) The Product: Users are looking for a product that is easy to use, high quality, and — most importantly — does the job they purchased it for.

2) The Relationship between the Account Manager and User Buyer: In my prior career as a consultant, I often found the relationship between the account teams and the user buyers was a critical driver of renewal. It’s not enough to have a transactional relationship; account managers have to build a relationship where they are seen as a strategic adviser.

In a world of buzz words, what does a “strategic adviser” really mean?  Clients will tell you a strategic adviser acts as the buyer’s vocal advocate within the organization and is simply someone they can trust.

3) Strength of the Technical Support Teams: Similar to the auto industry, the relationship between the client and the tech support team is crucial to the relationship.

4) Pricing: Even though conventional wisdom would put this at the top of the list, I chose to list it last. Why? I’ve run a number of customer satisfaction surveys over the years, and customers always suggest lowering the price. Understandably, everyone wants to lower their costs, but the fact is it’s not always feasible.

That said, it’s impossible to ignore pricing entirely, given the competitiveness of the markets. Incentives are always popular on the sales side, but other options include à la carte pricing, bundled options, or even sneak previews of beta platforms or features.

The Big Picture

Satisfaction is a great metric to track, and it does a good job of telling you the state of your customer base. But it’s important to realize there are more dimensions that need to be considered when thinking about drivers of retention.