1. Chapter 15 Customer Retention

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

3. 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”

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

5. 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

6. 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

7. 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

8. 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

9. 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

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

11. 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.

12. 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

13. 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

14. 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

15. 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

16. 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

17. 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

18. 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

19. 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

20. 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

21. 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