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The Importance of Customer Service for Loyalty and Retention


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Table of Contents

Why Is Customer Service Important?
Why Is Customer Retention Important?
The Importance of Customer Service And Its Impact On Retention Rates
7 Ways To Improve Your Customer Retention Using Customer Service

The Importance of Customer Service

The importance of customer service can be felt across the world of ecommerce and business. In this article we discuss why good customer service is one of the most effective customer retention strategies for any company including retail, travel, fashion and more.

Businesses tend to spend a large proportion of their budgets acquiring new customers, which means that the important job of keeping existing customers happy can be overlooked at times.

Satisfied customers are more likely to remain loyal to your products, make repeat purchases, and spread the word with friends and families.

There are several ways to improve customer retention rates, but I am going to look at the most important customer service tactics and how this can have a positive impact on retention, while also attracting new customers. 


Why Is Customer Service Important?

Great customer service can improve customer retention and repeat business. Repeat customers are also more valuable, with them spending 67% more than new customers, a study finds. Customer service can also improve your acquisition of new customers through positive reviews and word-of mouth. 

Why Is Customer Retention Important?

According to a 2020 study by investpro.com, the likelihood of selling to an existing customer is 60-70%, while the probability of selling to a new customer is 5%-20%.

Also, the majority of many businesses’ revenues are likely to come from repeat customers. According to a survey, 61% of businesses said that the majority of their revenue came from repeat business, with repeat buyers spending 67% more than new customers. Research in 2020 also found that existing customers are 50% more likely to be open to new products and spend 31% more compared to new customers.  

The importance of customer service is tied to increased customer value and overall revenue because the majority of business revenue comes from repeat customers, with the value of retention being better than new customers. This suggests your customer service tactics and retention strategy should be at the forefront of your marketing plans. 

This doesn’t mean that acquiring new customers should become a lower priority, as this is something that will depend on the growth stage of a business, but retention should always be kept in mind.

Moreover, these existing customers, if they’re satisfied with your products and services, are a great asset as they can help attract new customers. They may tell their friends and family, or write positive reviews that persuade others to buy.


The Importance of Customer Service And Its Impact on Retention Rates

Customer service is sometimes seen in terms of dealing with customer problems and complaints. In the worst cases, some see it as a series of problems to deal with or minimise.

There are other ways to look at customer service. It can be seen as an opportunity to leave a good impression with customers by dealing efficiently with their questions and ensuring that they end up being happy with your service.

This affects marketing too. Unhappy customers who have experienced poor service will not only become ex-customers, they often tell other people about it. In fact they’re much more likely to complain after a bad experience.

Zendesk study found that respondents who had a bad customer service interaction with a company were 50% more likely to share this on social media than those who had good experiences (45% v 30%).

The same survey also looked at the effect of service on propensity to purchase.  42% of customers said they bought more after a good customer service experience, while 52% didn’t buy from that company again.
Customer service can work both ways, but how can you use it to improve retention?

7 Ways To Improve Your Customer Retention Using Customer Service

Easy Returns Processes

A hassle-free returns policy can be great for persuading first-time customers to buy, but it also works for retention.

This is because customers are more confident making repeat purchases in the knowledge that they can return them without any issues if they need to

A satisfactory returns experience can also create a good impression with the customer. This experience can mean that they’re happy to buy again.
Some stats show that regular returners can also be some of the most valuable customers.

Indeed, Monetate found that the most loyal customers are more likely to return items (and return them quickly) than other customer segments. These customers are engaged with the brand and products, and are keen to try different products to find the right one.

The importance of customer service for marketing and retention

Zappos has always had a relatively generous returns policy (and a reputation for good customer service). According to CEO Craig Adkins:
“Our best customers have the highest returns rates, but they are also the ones that spend the most money with us and are our most profitable customers.”
There are costs associated with returns, and retailers do need to keep these costs under control. However, by making returns as easy as you possibly can, you can keep customers happy.


Shipping

Shipping has the potential to cause plenty of customer service issues, and this can have an impact on retention rates.

If you can deliver goods on time as promised, customers will be confident to order again and again. Delays and other shipping issues can lead to some very frustrated customers, especially at certain times of year, like Christmas.

Shipping can be a pain for retailers, as it’s often outsourced to couriers and postal services and therefore beyond their direct control. They have to trust that their choice of courier won’t let them down and undo their hard work in attracting customers to their websites and persuading them to convert.

It’s also important to set customer expectations around delivery. Don’t make promises you can’t keep. It can be better to underpromise and over-deliver. Research by Digital Commerce 360 found that the second most important factor for online shoppers is the ease of shipping returns, with the first being free shipping. This study interviewed 1,888 online consumers, with 40% saying the reason for not purchasing was delivery time, with 20% saying the delivery time was not precise. 


Empower Employees

Many frustrations people experience with customer service interactions are because representatives have very little freedom of action, needing the go-ahead from team leaders and managers to take actions required to solve customer problems.

Giving employees the responsibility to do what is needed to solve customer issues (within reason) can reduce customer frustration.
Zappos is a great example of a company which successfully created a culture of outstanding customer support.


Make It Easy for Customers to Contact You

Don’t make customers have to search long and hard for contact details. Make it easy for them to find a phone number or any other contact method.
In addition, a comprehensive FAQs section should also be provided, as this can quickly give customers the information they are looking for.

Here’s a great example from Schuh – clear contact details in the site header:


Customer Service Channels and Response Times

Offering a contact phone number and email address is a must for most businesses, but you should also think about the other channels you’ll provide for customer service, and how many you can reasonably support.
Customers have different expectations of each channel. For live chat and phone contact, they’ll expect instant responses, but some will use email or other channels for less urgent issues, as replies can take longer.
It’s good to set expectations around when customers should expect responses, as customers have different expectations depending on which channel they use.


Use the Right Customer Service Metrics

When looking at customer service performance, some companies can be guilty of focusing on metrics around handling of call volumes and queue times, but miss the more important question of whether customers questions are being resolved and they are happy.

Again, this is an area where Zappos has excelled, by using metrics focused on customer satisfaction.


If Your Customer Service Is Great, Shout About It

Great customer service can help to attract new customers, as well as encouraging existing customers to remain loyal.

If you have a reputation for good service, and positive reviews from customers, then this can be a great marketing asset.

The importance of customer service feeds into both retention of new customer acquisition. The scale of the power of positive reviews online is highlighted by a 2020 survey, which found 91% of 18-34-year-olds trust online reviews just as much as word-of-mouth recommendations. And, 93% of online consumers say their buying decisions were influenced by online reviews. 

For example, brands like first direct regularly score highly in customer satisfaction charts, and use this as a selling point.


For example, while other banks can be hard to get through to, first direct answers a high percentage of calls within 20 seconds, reducing the frustration of waiting in call queues.


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Graham Charlton

Graham Charlton is Editor in Chief at SaleCycle. He's been covering ecommerce and digital marketing for more than a decade, having previously written reports and articles for Econsultancy. ClickZ, Search Engine Watch and more.