Ch15

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Chapter 15

Customer Retention

Chapter 15

Customer Retention



CUSTOMER RETENTIONCUSTOMER RETENTION

More futuristic than customer satisfactionMore futuristic than customer satisfaction

Focuses marketing efforts to current Focuses marketing efforts to current customerscustomers

The opposite of conquest marketingThe opposite of conquest marketing



THE INCREASING IMPORTANCE OF CUSTOMER RETENTION


Markets are stagnantMarkets are stagnant decrease in population growthdecrease in population growth GNP growth increasing at a decreasing rateGNP growth increasing at a decreasing rate

Increase in competitionIncrease in competition relative parityrelative parity

Rising costs of marketingRising costs of marketing increase in the cost of advertisingincrease in the cost of advertising loss of “share of voice”loss of “share of voice”





Changes within the channels of distributionChanges within the channels of distribution distance marketingdistance marketing

Customers have changedCustomers have changed more informedmore informed increasingly skepticalincreasingly skeptical



THE BENEFITS OF CUSTOMER RETENTION

THE BENEFITS OF CUSTOMER RETENTION

Profits derived from salesProfits derived from sales Reducing defections by 5% can boost profits 25% Reducing defections by 5% can boost profits 25%

to 85%to 85% Profits from reduced operation costsProfits from reduced operation costs

It is 3 to 5 times cheaper to keep a customer than It is 3 to 5 times cheaper to keep a customer than to recruit a new oneto recruit a new one

Profits from referralsProfits from referrals



How Much Profit a Customer Generates Over TimeHow Much Profit a Customer Generates Over Time

Source: Adapted from Frederick F. Reichheld and W. Earl Sasser, Jr., “Zero Defections: QualityComes to Services,” Harvard Business Review (September-October 1990, pp. 106-107.



Maintain the proper perspectiveMaintain the proper perspective

Build trusting relationshipsBuild trusting relationships

Protect confidential informationProtect confidential information

Tell customers the truthTell customers the truth

Provide full information (pros and cons)Provide full information (pros and cons)

Be dependable, courteous, and considerateBe dependable, courteous, and considerate

Be actively involved in community affairsBe actively involved in community affairs

CUSTOMER RETENTION TACTICSCUSTOMER RETENTION TACTICS



CUSTOMER RETENTION TACTICSCUSTOMER RETENTION TACTICS

Monitor the service delivery processMonitor the service delivery process

Properly install products and train Properly install products and train customerscustomers

Be there when you are needed the mostBe there when you are needed the most

Provide discretionary effortProvide discretionary effort



IS IT ALWAYS WORTHWHILE TO KEEP A CUSTOMER?

IS IT ALWAYS WORTHWHILE TO KEEP A CUSTOMER?

The account is no longer profitableThe account is no longer profitable Contract conditions are no longer being metContract conditions are no longer being met Customers demands are beyond reasonableCustomers demands are beyond reasonable Customer is abusive to the point that it Customer is abusive to the point that it

lowers employee moralelowers employee morale Customer’s reputation is so poor that it Customer’s reputation is so poor that it

tarnishes the reputation of the selling firmtarnishes the reputation of the selling firm



EMERGING CUSTOMER RETENTION PROGRAMSEMERGING CUSTOMER RETENTION PROGRAMS

Frequency MarketingFrequency Marketing Primary goal is to encourage existing customers Primary goal is to encourage existing customers

to purchase more often from the same providerto purchase more often from the same provider



COMMENTS ABOUT FREQUENCY MARKETING

COMMENTS ABOUT FREQUENCY MARKETING

The Leaky Bucket TheoryThe Leaky Bucket Theory Replaces lost customers with new customersReplaces lost customers with new customers

10% of customers tend to be loyal10% of customers tend to be loyal 100% of loyal customers are light purchasers100% of loyal customers are light purchasers

Polygamous LoyaltyPolygamous Loyalty Customer loyalty is generally divided among a number Customer loyalty is generally divided among a number

of fixed brandsof fixed brands Frequent flyer cards…3.1/travelerFrequent flyer cards…3.1/traveler

Double JeopardyDouble Jeopardy Small brands have fewer buyers who buy less Small brands have fewer buyers who buy less

frequently.frequently.



EMERGING CUSTOMER RETENTION PROGRAMSEMERGING CUSTOMER RETENTION PROGRAMS

Relationship MarketingRelationship Marketing Marketing technique based on developingMarketing technique based on developing

long-term relationships with customerslong-term relationships with customers AftermarketingAftermarketing

Emphasizes the importance of marketing efforts Emphasizes the importance of marketing efforts after the initial sale has been madeafter the initial sale has been made



TYPES OF SERVICE GUARANTEESTYPES OF SERVICE GUARANTEES Implicit GuaranteesImplicit Guarantees

An unwritten, unspoken guarantee that An unwritten, unspoken guarantee that establishes an understanding between the firm establishes an understanding between the firm and its customerand its customer

Specific Result GuaranteesSpecific Result Guarantees Guarantees that apply only to specific steps or Guarantees that apply only to specific steps or

outputs in the service delivery processoutputs in the service delivery process Unconditional GuaranteeUnconditional Guarantee

A guarantee that promises complete customer A guarantee that promises complete customer satisfactionsatisfaction



THE BENEFITS OF GUARANTEESTHE BENEFITS OF GUARANTEES

Customer-directed Benefits:Customer-directed Benefits: customers perceive a better valuecustomers perceive a better value

perceived risk is lowerperceived risk is lower

the firm is perceived as more reliablethe firm is perceived as more reliable

helps consumers decide among alternativeshelps consumers decide among alternatives

helps consumers overcome resistancehelps consumers overcome resistance

helps to overcome negative word-of-mouthhelps to overcome negative word-of-mouth




Organization-directed Benefits:Organization-directed Benefits:

forces the firm to focus on the customer’s forces the firm to focus on the customer’s definition of good servicedefinition of good service

the guarantee states a goal that is communicated the guarantee states a goal that is communicated to employees and customersto employees and customers

invoked guarantees provides a measurable means invoked guarantees provides a measurable means of performanceof performance



Organization-directed Benefits (cont’d):Organization-directed Benefits (cont’d): forces the firm to examine its entire service forces the firm to examine its entire service

delivery system for failure pointsdelivery system for failure points

serves a source of pride and motivation for serves a source of pride and motivation for team buildingteam building




May be viewed as a “Tacky” marketing ployMay be viewed as a “Tacky” marketing ploy

Is guaranteed due to failures in the past?Is guaranteed due to failures in the past?

Customers may be too embarrassed to invoke Customers may be too embarrassed to invoke

guaranteeguarantee

Guarantee may encourage customers not to Guarantee may encourage customers not to

complaincomplain

Documentation and time for actual refund to be Documentation and time for actual refund to be

completedcompleted

RISKS ASSOCIATED WITH GUARANTEES



Prices are highPrices are high

The costs of a negative outcome are highThe costs of a negative outcome are high

The service is customizedThe service is customized

Brand recognition is difficult to achieveBrand recognition is difficult to achieve

Buyer resistance is highBuyer resistance is high

SUGGESTED CONDITIONS FOR OFFERING SERVICE GUARANTEES

SUGGESTED CONDITIONS FOR OFFERING SERVICE GUARANTEES



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

CUSTOMER DEFECTIONSCUSTOMER DEFECTIONS



SATISFACTION & DEFECTIONSSATISFACTION & DEFECTIONS

Satisfaction does not necessarily translate into Satisfaction does not necessarily translate into customer retentioncustomer retention

high satisfaction/low loyaltyhigh satisfaction/low loyalty commodity products (no differentiation)commodity products (no differentiation)

consumer indifference (low involvement)consumer indifference (low involvement)

many substitutesmany substitutes

low cost of switchinglow cost of switching



SATISFACTION & DEFECTIONSSATISFACTION & DEFECTIONS

Satisfaction does not necessarily translate into Satisfaction does not necessarily translate into customer retentioncustomer retention

low satisfaction/high retentionlow satisfaction/high retention regulated monopoly (or few substitutes)regulated monopoly (or few substitutes)

dominant brand equitydominant brand equity

high cost of switchinghigh cost of switching

proprietary technologyproprietary technology

Ch15

Business

Transcript of Ch15