Customer Loyalty & Retention Chapter 14 Customer Loyalty & Retention

Chapter Objectives Understand the difference between the service marketing concepts of loyalty and retention and the relationship between the two. Discuss why the concept of customer retention has become increasingly important. Master successful tactics for retaining existing customers.   Describe emerging customer retention programs Explain defection management. ©2011 Cengage Learning. All rights reserved.

Opening Vignette: Harrah’s Harrah’s was one of the first companies in the gaming industry to use its loyalty program, Total Rewards, to identify its best and most loyal customers, and to reward those customers in ways they had never been rewarded before. ©2011 Cengage Learning. All rights reserved.

Customer Loyalty Reflects an emotional attachment as well as a business attachment to the service firm   A deeper conviction to the firm than pure retention alone. Higher levels of customer satisfaction would be expected to be associated with higher levels of customer retention; the relationship does not always necessarily exist. Consider the following cases where: Customers are not satisfied, yet they are retained Customers are satisfied, yet they defect to competitive offerings ©2011 Cengage Learning. All rights reserved.

Strategies for Cultivating Customer Loyalty Developing a proper perspective Staying in touch Providing discretionary effort Leading through top-down loyalty Training and empowering employees Providing incentives ©2011 Cengage Learning. All rights reserved.

Strategies for Cultivating Customer Loyalty Remembering your customers’ purchases Building trust through reliability Flexibility Replace technology with humans Be great with names Being available when you’re needed the most ©2011 Cengage Learning. All rights reserved.

Customer Retention More futuristic than customer satisfaction Focuses marketing efforts to current customers The opposite of conquest marketing ©2011 Cengage Learning. All rights reserved.

Importance of Customer Retention Markets are stagnant decrease in population growth Increase in competition relative parity Rising costs of marketing increase in the cost of advertising loss of “share of voice” ©2011 Cengage Learning. All rights reserved.

Importance of Customer Retention Changes within the channels of distribution distance marketing Customers have changed more informed increasingly skeptical ©2011 Cengage Learning. All rights reserved.

Benefits of Customer Retention Profits derived from sales Reducing defections by 5% can boost profits 25% to 85% depending on the industry 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 Positive word-of-mouth advertising generated by satisfied customers ©2011 Cengage Learning. All rights reserved.

Lifetime Value of a Customer Average Lifetime Value = (Average Sale) x (Estimated number of times customer reorder) Lifetime profit of a customer Average Profit Value = (Average Profit Per Sale) x (Estimated number of times customer reorder) Customer acquisition cost Break-even Customer acquisition cost = (Average Lifetime Profit) + (Average Customer Acquisition Cost) ©2011 Cengage Learning. All rights reserved.

Is it always worthwhile to keep a customer? The account is no longer profitable Contract conditions are no longer being met Customer is abusive to the point that it lowers employee morale Customers demands are beyond reasonable Customer’s reputation is so poor that it tarnishes the reputation of the selling firm ©2011 Cengage Learning. All rights reserved.

Emerging Customer Retention Programs Frequency Marketing Primary goal is to encourage existing customers to purchase more often from the same provider ©2011 Cengage Learning. All rights reserved.

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 ©2011 Cengage Learning. All rights reserved.

Types of Guarantees Unconditional Guarantee Specific Result Guarantees A guarantee that promises complete customer satisfaction Specific Result Guarantees Guarantees that apply only to specific steps or outputs in the service delivery process Implicit Guarantees An unwritten, unspoken guarantee that establishes an understanding between the firm and its customer ©2011 Cengage Learning. All rights reserved.

Benefits of Unconditional 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 ©2011 Cengage Learning. All rights reserved.

Benefits of Unconditional 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 forces the firm to examine its entire service delivery system for failure points serves a source of pride and motivation for team building ©2011 Cengage Learning. All rights reserved.

Professional 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 ©2011 Cengage Learning. All rights reserved.

Defection Management 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 ©2011 Cengage Learning. All rights reserved.

Copyright © 2011 Cengage Learning. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America. Copyright © 2011 Cengage Learning.   ©2011 Cengage Learning. All rights reserved.