Why customer retention is crucial for retailers

When it comes to growing a retail business, attracting new customers often takes centre stage. However, Novuna Consumer Finance’s latest research shows that investing in customer retention strategies can drive even greater results for long-term growth and profitability.

As acquisition costs soar and competition tightens, keeping loyal customers has never been more important.

Retention vs. acquisition: the hidden costs

Many retailers pour resources into bringing in new customers, overlooking just how costly this can be. According to our findings, securing a new customer is roughly five times more expensive than retaining an existing one. On top of that, converting a new shopper costs about 29% more.

It’s no surprise that with 69% of retailers reporting rising acquisition costs, focusing on retention isn’t just smart - it’s essential. By prioritising loyal customers, businesses can protect their bottom line and build a more sustainable future.

The power of boosting retention rates

Customer retention isn’t simply about loyalty - it’s a direct indicator of how well your brand maintains satisfaction over time. Even modest gains in retention can deliver huge payoffs. Novuna’s analysis reveals that improving retention by just 5% can lift profits by 25% to 95%.

This makes retention far more than a ‘nice-to-have’ metric - it’s a vital measure of a retailer’s health, resilience, and future success.

Are retailers tracking the right metrics?

Despite its importance, 35% of retailers aren’t actively measuring customer retention, according to our research. This leaves them in the dark about key signals of loyalty, satisfaction, and marketing effectiveness.

A simple way to calculate customer retention is:

Retention rate = [(End of period customers – New customers acquired) / Start of period customers] × 100

Tracking this metric regularly provides actionable insights that help fine-tune marketing and customer engagement strategies, ensuring spend delivers long-term, loyal customers - not just one-off sales.

Exceptional experiences drive customer loyalty

Delivering standout customer experiences is central to retention. A 2023 PwC study found that 32% of customers would drop their favourite brand after just one poor experience, while 61% would switch to a competitor following bad service.

For retailers, this highlights the need to consistently provide high-quality, personalised interactions at every touchpoint - online, in-store, and everywhere in between.

Proven strategies to increase customer retention

To build deeper customer loyalty, retailers should embrace a holistic approach that puts customers at the centre. Effective tactics include:

• Personalised experiences: Use data to tailor communications, product recommendations, and offers that resonate with individual customers.
• Outstanding customer service: Equip teams to be proactive, responsive, and empathetic, turning potential frustrations into loyalty-building moments.
• Flexible retail finance: Offering payment solutions that spread costs makes purchases more accessible, encouraging repeat business and larger baskets.
• Value-led loyalty programmes: Design programmes with meaningful rewards, exclusive perks, or early access to products to incentivise repeat visits.
• Seamless omnichannel experiences: Ensure customers enjoy consistent, frictionless shopping across digital and physical channels.
  
  

How retail finance boosts retention and customer value

Flexible finance options play a big role in customer retention. By offering convenient payment plans, retailers make shopping more affordable, helping customers buy what they truly want. This strengthens loyalty and boosts satisfaction.

Novuna Consumer Finance partners with thousands of UK retailers to provide tailored finance solutions. The results? Retailers often see higher average transaction values (ATVs) and better long-term customer loyalty.

Using feedback and data to stay ahead

Listening to customers is key. Collecting and acting on feedback not only resolves potential issues but also shows customers you genuinely care.

Coupled with advanced analytics and machine learning, retailers can uncover deeper insights into customer behaviour and predict churn risks - empowering them to take proactive steps to protect valuable relationships.

Omnichannel: the future of retention

Today’s shoppers expect connected experiences across online, mobile, and in-store environments. Retailers investing in strong omnichannel strategies typically enjoy higher spending per customer compared to those operating in a single channel.

By creating integrated customer journeys, businesses can significantly lift retention rates and lifetime value.

Overall retail strategy

With acquisition costs continuing to climb, customer retention stands out as the most cost-effective way to secure growth. By delivering exceptional experiences, offering flexible finance, and using customer insights to refine your approach, you can build stronger relationships that drive profitability and long-term loyalty.