Chapter 15 Customer Retention

CUSTOMER RETENTION More futuristic than customer satisfaction Focuses marketing efforts to current customers The opposite of conquest marketing

THE INCREASING IMPORTANCE OF CUSTOMER RETENTION Markets are stagnant decrease in population growth GNP growth increasing at a decreasing rate Increase in competition relative parity Rising costs of marketing increase in the cost of advertising loss of “share of voice”

THE INCREASING IMPORTANCE OF CUSTOMER RETENTION Changes within the channels of distribution distance marketing Customers have changed more informed increasingly skeptical

THE BENEFITS OF CUSTOMER RETENTION Profits derived from sales Reducing defections by 5% can boost profits 25% to 85% Profits from reduced operation costs It is 3 to 5 times cheaper to keep a customer than to recruit a new one Profits from referrals

How Much Profit a Customer Generates Over Time Source: Adapted from Frederick F. Reichheld and W. Earl Sasser, Jr., “Zero Defections: Quality Comes to Services,” Harvard Business Review (September-October 1990, pp. 106-107.

CUSTOMER RETENTION TACTICS Maintain the proper perspective Build trusting relationships Protect confidential information Tell customers the truth Provide full information (pros and cons) Be dependable, courteous, and considerate Be actively involved in community affairs

CUSTOMER RETENTION TACTICS Monitor the service delivery process Properly install products and train customers Be there when you are needed the most Provide discretionary effort

IS IT ALWAYS WORTHWHILE TO KEEP A CUSTOMER? The account is no longer profitable Contract conditions are no longer being met Customers demands are beyond reasonable Customer is abusive to the point that it lowers employee morale Customer’s reputation is so poor that it tarnishes the reputation of the selling firm

EMERGING CUSTOMER RETENTION PROGRAMS Frequency Marketing Primary goal is to encourage existing customers to purchase more often from the same provider

COMMENTS ABOUT FREQUENCY MARKETING The Leaky Bucket Theory Replaces lost customers with new customers 10% of customers tend to be loyal 100% of loyal customers are light purchasers Polygamous Loyalty Customer loyalty is generally divided among a number of fixed brands Frequent flyer cards…3.1/traveler Double Jeopardy Small brands have fewer buyers who buy less frequently.

EMERGING CUSTOMER RETENTION PROGRAMS Relationship Marketing Marketing technique based on developing long-term relationships with customers Aftermarketing Emphasizes the importance of marketing efforts after the initial sale has been made

TYPES OF SERVICE GUARANTEES Implicit Guarantees An unwritten, unspoken guarantee that establishes an understanding between the firm and its customer Specific Result Guarantees Guarantees that apply only to specific steps or outputs in the service delivery process Unconditional Guarantee A guarantee that promises complete customer satisfaction

THE BENEFITS OF GUARANTEES Customer-directed Benefits: customers perceive a better value perceived risk is lower the firm is perceived as more reliable helps consumers decide among alternatives helps consumers overcome resistance helps to overcome negative word-of-mouth

THE BENEFITS OF GUARANTEES Organization-directed Benefits: forces the firm to focus on the customer’s definition of good service the guarantee states a goal that is communicated to employees and customers invoked guarantees provides a measurable means of performance

THE BENEFITS OF GUARANTEES Organization-directed Benefits (cont’d): forces the firm to examine its entire service delivery system for failure points serves a source of pride and motivation for team building

RISKS ASSOCIATED WITH GUARANTEES May be viewed as a “Tacky” marketing ploy Is guaranteed due to failures in the past? Customers may be too embarrassed to invoke guarantee Guarantee may encourage customers not to complain Documentation and time for actual refund to be completed

SUGGESTED CONDITIONS FOR OFFERING SERVICE GUARANTEES Prices are high The costs of a negative outcome are high The service is customized Brand recognition is difficult to achieve Buyer resistance is high

Businesses commonly lose 15% to 20% of their customers each year CUSTOMER DEFECTIONS Businesses commonly lose 15% to 20% of their customers each year Types of defectors price defectors product defectors service defectors market defectors technological defectors organizational defectors

SATISFACTION & DEFECTIONS Satisfaction does not necessarily translate into customer retention high satisfaction/low loyalty commodity products (no differentiation) consumer indifference (low involvement) many substitutes low cost of switching

SATISFACTION & DEFECTIONS Satisfaction does not necessarily translate into customer retention low satisfaction/high retention regulated monopoly (or few substitutes) dominant brand equity high cost of switching proprietary technology