The global economy is on the cusp of a recession, forcing many organizations to retrench and cut costs. While retrenching can be an effective measure for defending against inflation and slowing sales, it’s equally crucial for founders to proactively drive growth in a recessionary environment.
Over the last few decades, numerous tech companies have successfully withstood economic downturns by redirecting assets and focusing efforts on creating customer value and boosting retention. However, relying solely on new customers is not a guarantee of success, especially during periods of economic uncertainty. A more dependable growth strategy lies in managing existing customers and broadening the products and services they use over time.
The Power of Retention
Profitable and mature companies with large, active customer bases are better equipped to handle downturns, particularly if more than 75% of their revenue comes from existing customers. This is because retaining existing customers is significantly less costly than acquiring new ones. In fact, studies have shown that increasing customer retention rates by just 5% can lead to a 25-95% increase in profits.
Centralizing First-Party Data
One critical step in shifting focus to a growth-through-retention strategy is centralizing first-party data. Customer data is considered first-party when it’s collected directly from customers through their interactions with the company, rather than from third-party sources like social media or marketing firms. Centralizing this data enables companies to build a more comprehensive understanding of their customers’ needs and preferences.
To achieve this, companies can implement data management platforms that collect and store customer data in one place. This allows for easier access and analysis of customer information, enabling businesses to create targeted marketing campaigns and personalized product offerings that cater to individual customer needs.
Account Teams: The Unsung Heroes of Retention
While account teams play a crucial role in retaining existing customers, the responsibility doesn’t rest solely on their shoulders. Preserving and growing existing customers is a job for everyone at a business, from sales and marketing to product development and customer support.
Frequent top-down discussions regarding customer goals and constraints will help align departments in service of retention. This involves understanding customer requirements and constraints, which can only be achieved through better outreach and engagement supported by strong customer data.
The Appetite for Value
During a downturn, customers look for value in the products or services they use. Corporate leaders may impose cuts in budgets and spending, but their businesses will rely even more on technology to stay afloat. The appetite for expensive, so-called "best-of-breed" vendors will recede, as these vendors are poorly positioned to increase value to their customers due to their high price tags.
Companies that prioritize and appropriately price products or services essential to consumer and business survival and success will see the most growth in a down market. To achieve this, businesses must understand their customers’ dynamic requirements and constraints, which can only be achieved through better outreach and engagement supported by strong customer data.
Conclusion
Navigating a recession requires more than just cutting costs; it demands proactive strategies to drive growth and retention. By centralizing first-party data, aligning departments around customer goals, and prioritizing value in products or services, founders can position their companies for success in even the most challenging economic environments.
As Vijay Sundaram, Chief Strategy Officer at Zoho, notes, "In a down market, customers look for value in the products or services they use. Companies that prioritize and appropriately price essential products will see the most growth." By embracing retention as a key driver of growth, founders can ensure their companies emerge stronger and more resilient than ever.
Related Topics
- Customer Retention
- EC Cloud and Enterprise Infrastructure
- EC Column
- EC Enterprise Applications
- EC Growth Marketing
- EC How To
- Enterprise
- Startups
About the Author
Vijay Sundaram is Chief Strategy Officer at Zoho, where he drives corporate strategy, execution, channel management, business development, and enterprise sales. He is a prior entrepreneur and company founder in cloud supply chain software, mobile advertising technology, and renewable energy.
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