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Warranties Increase Customer Retention: Here's How

Happy woman ecommerce customer holds shopping bags

Customer retention is a critical aspect of retail business success. But too many companies have a high churn rate with their ecommerce customers. 

Warranties are a great way to maximize the value from each customer with greater retention.  Our recent retail consumer study found that 81% of customers say a positive warranty claims experience makes them more likely to purchase from the company again.

To leverage warranties to grow your customer retention rates, it’s important to understand the basics of customer retention. Let’s take a look at what customer retention is, why it’s important, and how a warranty program can help you in your customer retention goals.

What Is Customer Retention?

Customer retention is the measure of the number of returning customers who have multiple transactions over a period of time. 

Customer retention strategies focus on ways to build a loyal base of repeat customers. Loyal customers maintain a long-term relationship with your brand that keeps them coming back. 

You can calculate your customer retention rate by first determining a set time period over which to measure your customers. Then look at the number of customers at the beginning and end of that time period and count how many of them are new. 

If you calculate your customer retention rate over a year, the equation would look like this:

 

Total customers by end of year − new customers within the year

_____________________________________________________

Total # customers at the start of the year

 

Retention rates will vary depending on the industry and product type. Try measuring retention rate over several periods of time and see whether you have a general trend of an increase or decrease in repeat customers.

Why Is Customer Retention Important?

With seemingly endless choices, customers have their pick of brands. Your orders might come from a lot of one-time customers who then go with a different option in the future. Repeat customers are important because they provide more value to the brand in the long term. 

Here are two of the major advantages to increasing customer retention:

Customer retention costs less than acquisition

Acquiring new customers is a big expense to your company. Between advertising, marketing and other costs, acquisition can require a hefty budget. 

However, existing customers offer continuing value to your business without additional costs. It can be between 5-25x more expensive to acquire a new customer than keep an existing one. Having a customer who has repeated transactions reduces the average cost per customer.

Retained customers spend more

Your existing customers also offer more value for your business. There are some key reasons why AOV is important for your business, including an increase in revenue from each transaction. Returning customers are 31% more likely to have a higher AOV in their transactions. 

As your customers become loyal to your brand, their value grows over time. Customers who are loyal long term are also likely to spend a greater amount later on in their relationship with your company.

How Warranties Increase Customer Retention

Here are three ways product protection programs are key to offering a great customer experience:

Easy customer journey integration

Partnering with an extended warranty provider allows seamless integration into your ecommerce site. Customers should be able to get the product coverage options they want during purchase without interruptions.

A warranty program that fits smoothly into the customer journey can make adding a protection plan an easy part of the shopping process. When customers have a positive shopping experience, they’re more likely to return to your site again and again.

Positive filing experience

A warranty file experience that delights customers is key to their feelings about your brand. That’s why more than four out of five of our study participants said that they have a positive perception of a brand when they have a positive claims experience. 

This warranty customer experience leads to greater retention of customers that will be loyal for the long-term. And in addition, the survey respondents indicated that a positive warranty experience makes them also more likely to recommend the product or company to others. 

Demonstrated brand trust

Today’s customers want to feel connected to a brand to maintain a relationship with them. Their customer experience can help them feel connected to the company when they feel like they can trust them. 

Customers are loyal to brands they can trust. Warranties improve brand trust by showing customers that they stand behind their products. Trust helps shoppers to build the types of relationships with companies that will keep them coming back.

The Key to Customer Retention

Companies that retain more customers are those that are dedicated to providing a top-notch customer experience that delights consumers. 

Retailers that are customer-centric should make sure that a positive customer experience applies to every aspect of their business. A positive warranty customer experience from beginning to end is key to leveraging warranties to increase your customer retention.

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Janessa McQuivey

About the author

Janessa McQuivey is the Content Marketing Manager at Mulberry. Her degree in Human Development fueled a love of understanding customer experience. She has been in research and writing for 3 years and has covered everything from AI technology to her own dating life. Janessa has published across blogs, newspapers, and academic journals.

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