Customer Retention and Customer Winback Strategies (for ABF)
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Transcript of Customer Retention and Customer Winback Strategies (for ABF)
“Update on non-monetary approach to integrate customers with strong emotional
ties to become sustainable clients”
By:
Assist. Prof. Dr. Burin T. Sriwong
Director of Social and Health System Management Program,
Faculty of Pharmacy, Silpakorn University
CUSTOMER RETENTION & CUSTOMER WIN-BACK STRATEGIES
29th -30th April 2009 At Grand Sukhumvit Hotel
Bangkok
Overview
Definition
Understand non-monetary approach
Key factors of non-monetary approach
Tools and techniques for customers’ emotional building and loyalty
Establishing non-monetary program and set up goal micro and macro level
How to measure cost-effectiveness and find indicators to evaluate program
1
Definition
2
What is Loyalty?
Loyalty is a deeply held commitment to re-buy or re-patronize a preferred product or service
in the future despite situational influences and marketing efforts having the potential to cause
switching behavior.
(Philip Kotler 2509)
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Customer Retention Strategy
Customer Retention strategy is the activity that the selling organization undertakes to reduce c
ustomer account defection .
The success of this activity is when the customer account places an additional order before a 12-month period has expired . Note that ideally these orders will need to contribute similar financial amounts to the previous 12 months.
It can also be described as a series of actions that the selling organization undertakes to reduce defections.
4
Customer Win-back Strategy
Customer Win-back Strategy can mean anything from trying to recover a once valuable customer to trying to restart a relationship with a once-promising prospect
(John Gaffney 2009)
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Customer Win-back
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Customer Win-Back Strategy กลยุ�ทธ์�เพื่��อเอาชนะใจและด้�งอด้+ติล�กค้�า ให�กล(บมาเป๋.นล�กค้�าอ+ก ซึ่��งม+ค้ว้ามส่�าค้(ญไม!น�อยุไป๋กว้!าส่องข้�อแรก โด้ยุเฉพื่าะในโลกการติลาด้ท+�เส่ม�อนก�าล(งท�าส่งค้รามแยุ!งช�งล�กค้�าก(น
(อนุ�ชิ�ต เที่�ยงธรรม Marketeer ฉบั�บัที่� 36 กุ�มภาพั�นุธ� 2546)
6
Understand non-monetary approach
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Understand non-monetary approach
Non-monetary approach are used to reward participants for excellent behavior through opportunities.
Non-monetary incentives may include flexible work hours, payroll or premium contributions, training, health savings or reimbursement accounts, or even paid sabbaticals .
8
Key factors of non-monetary approach
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Key factors of non-monetary approachFigure 1: Mapping between relationship motives and values
Source: Bernd Heinrich. “Transforming strategic goals of CRM into process goals and activities” Business Process Management Journal,Vol.11, No. 6, 2005, pp: 709-723 10
Tools and techniques for customers’ emotional building and loyalty
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Tools and techniques for customers’ emotional building and loyalty
1. Build aFoundationfor Loyalty
2. Create LoyaltyBonds
3. Reduce Churn Drivers
CustomerLoyalty
Be selective in acquisition
Conduct churn diagnosticSegment the market
Use effective tiering of service.
Deliver quality service.
Deepen the relationshipGive loyalty
rewards
Build higher level bonds
Implement complaint handling and service recovery
Address key churn drivers
Increase switching costs
Enabled through: Frontline staff Account
managers Membership
programs CRM Systems
Figure 2 :The Wheel of Loyalty
12
1. Building a Foundation for Loyalty
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Customer Needs and Company Capabilities
Identify and target the right customers
How do customer needs relate to operations elements?
How well can service personnel meet expectations of different types of customers?
Can company match or exceed competing services that are directed at same types of customers?
Should result in a superior service offering in the eyes of those customers who value what firm has to offer
14
Searching for Value—Not Just Volume
Focus on number of customers served as well as value of each customer Heavy users who buy more frequently and in larger volumes
are more profitable than occasional users Avoid targeting customers who buy based on lowest price
• Firms that are highly focused and selective in their acquisition of customers grow faster
• “Right customers” are not always high spenders Can come from a large group of people that no other
supplier is serving well
• Different segments offer different value
15
Effective Tiering of Service The Customer Pyramid (Fig 3)
Which segment sees high value in our offer, spends more with us over time, costs less to maintain, and spreads positive word-of-mouth?
Which segment costs us time, effort, and money, yet does not provide return we want? Which segment is difficult to do business with?Lead
Iron
Gold
Platinum
Good Relationship Customers
Poor Relationship Customers
Source: Valarie A Zeithaml, Roland T Rust, and Katharine N. Lemon, “The Customer Pyramid: Creating and Serving Profitable Customers,” California Management Review 43, no. 4, Summer 2001, pp.118–142.
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The Customer Satisfaction Loyalty Relationship (Fig 4)
0
20
40
60
80
100
1 2 3 4 5
Lo
yalt
y (R
eten
tio
n)
VeryDissatisfied
Dissatisfied Neither Satisfied VerySatisfied
Satisfaction
Near Apostle
Zone of Defection
Zone of Indifference
Zone of Affection
Terrorist
Apostle
Source: Adapted from Thomas O. Jones and W. Earl Sasser, Jr., “Why Satisfied Customers Defect,” Harvard Business Review, November-December 1995, p. 91.
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2. Creating Loyalty Bonds
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Strategies for Developing Loyalty Bonds with Customers (1)
Deepening the relationship
Bundling/cross-selling services makes switching a major effort that customer is unwilling to undertake unless extremely dissatisfied with service provider
Customers benefit from consolidating their purchasing of various services from the same provider
19
Strategies for Developing Loyalty Bonds with Customers (2) Reward-based Bonds
Incentives that offer rewards based on frequency of purchase, value of purchase, or combination of both
Financial bonds
― Discounts on purchases, loyalty program rewards (e.g., frequent flier miles), cash-back programs
Non-financial rewards
― Priority to loyalty program members for waitlists and queues in call centers: higher baggage allowances, priority upgrading, access to airport lounges for frequent flyers
Intangible rewards
― Special recognition and appreciation, tiered loyalty programs
Reward-based loyalty programs are relatively easy to copy and rarely provide a sustained competitive advantage
20
Strategies for Developing Loyalty Bonds with Customers (3)
Social Bonds
Based on personal relationships between providers and customers
Harder to build and imitate and thus, better chance of retention in the long term
Customization Bonds
Customized service for loyal customers
― e.g., Starbucks Customers may find it
hard to adjust to another service provider who cannot customize service
Source: PAL Library; Asset ID: AAFHKTO0
21
Strategies for Developing Loyalty Bonds with Customers (4)
Structural Bonds
Mostly seen in B2B settings Stimulate loyalty through structural relationships between
provider and customer
― Joint investments in projects and sharing of information, processes and equipment
Can be seen in B2C environment too― Airlines—SMS check-in, SMS e-mail alerts for flight
arrival and departure times
Difficult for competition to draw customers away when they have integrated their way of doing things with existing supplier
22
3. Strategies for Reducing Customer Defections
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Analyze Customer Defections and Monitor Declining Accounts
Understand reasons for customer switching
Churn diagnostics common in mobile phone industry
Analysis of data warehouse information on churned and declining customers
Exit interviews: ― Ask a short set of questions when customer cancels
account; in-depth interviews of former customers by third party agency
Churn Alert Systems: ― Monitor activity in individual customer accounts to
predict impending customer switching― Proactive detention efforts—send voucher, customer
service representative calls customer
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What Drives Customers to Switch?(Fig 5)
Source: Adapted from Susan M. Keaveney, “Customer Switching Behavior in Service Industries: An Exploratory Study,” Journal of Marketing 59 (April 1995), pp. 71–82.
Core Service Failure• Service Mistakes• Billing Errors• Service Catastrophe
Service Encounter Failures• Uncaring• Impolite• Unresponsive• Unknowledgeable
Response to Service Failure• Negative Response• No Response• Reluctant Response
Pricing• High Price• Price Increases• Unfair Pricing• Deceptive Pricing
Inconvenience• Location/Hours• Wait for Appointment• Wait for Service
Competition• Found Better Service
Service Failure/Recovery Value Proposition
ServiceSwitching
Involuntary Switching• Customer Moved• Provider Closed
Ethical Problems• Cheat• Hard Sell
• Unsafe• Conflict of Interest
Others
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Addressing Key Churn Drivers
Delivery quality Minimize inconvenience and nonmonetary
costs Fair and transparent pricing Industry specific drivers
Cellular phone industry: Handset replacement a common reason for subscribers discontinuing services—offer proactive handset replacement programs
Reactive measures Save teams: Specially trained call center staff to deal
with customers who want to cancel their accounts
Be careful about how save teams are rewarded
26
Other Ways to Reduce Churn
Implement effective complaint handling and service recovery procedures
Increase switching costs
Natural switching costs
― For example, changing primary bank account—many related services tied to account
Can be created by instituting contractual penalties for switching
― Must be careful not to be perceived as holding customers hostage
― High switching barriers and poor service quality likely to generate negative attitudes and word of mouth
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Establishing non-monetary program and set up goal micro and macro
level
28
Creating Customer Bonds by Membership Relationships and Loyalty Programs (1)
Transform discrete transactions into relationships
Discrete transactions: Each usage involves payment to service supplier by an essentially "anonymous" consumer
Membership cards: Capture transactions, communicate customer preferences to frontline
Loyalty reward programs increasingly used by all businesses in response to competition
― Frequent fliers program—rewards dominated in miles
Customers may get frustrated with reward programs
― For example: Feel excluded from rewards program because of low balances, rewards seen as having little value, cumbersome redemption process
Don’t lose sight of broader goals of offering high service quality, nor allow service to other customers to deteriorate
29
Create Customer Bonds by Membership Relationships and Loyalty Programs (2)
How customers perceive reward programs
Brand loyalty versus deal loyalty Buyers value rewards according to:
― Cash value of redemption award
― Range of choice among rewards
― Aspirational value of rewards
― Amount of usage required to obtain award
― Psychological benefits of belonging to reward program
Timing
― Send customers periodic updates on account status and progress towards particular milestones
30
How to measure cost-effectiveness and find indicators to evaluate
program
31
Assessing the Value of a Loyal Customer (1)
Must not assume that loyal customers are always more profitable than those making one-time transactions
Costs ―Not all types of services incur heavy promotional
expenditures to attract a new customer ―Walk-in traffic more important at times
Revenue―Large customers may expect price discounts in
return for loyalty―Revenues don’t necessarily increase with time
for all types of customers
32
Profit impact of a customer varies according to stage of service in product life cycle
For example referrals and negative word-of-mouth have a higher impact in early stages
Tasks
Determine costs and revenues for customers from different market segments at different points in their customer lifecycles
Predict future profitability
Assessing the Value of a Loyal Customer (2)
33
Measuring Customer Equity:Lifetime Value of Each Customer
Acquisition revenues less costs Revenues (application fee + initial purchase) Costs (marketing + credit check + account set up)
Projected annual revenues and costs Revenues (annual fee + sales + service fees + value of
referrals) Costs (account management + cost of sales + write-offs)
Value of referrals Percentage of customers influenced by other customers Other marketing activities that drew the firm to an individual’s
attention
Net Present Value
Sum anticipated annual values (future profits) Suitably discounted each year into the future
34
Gap Between Actual and Potential Customer Value
What is current purchasing behavior of customers in each target segment?
What would be impact on sales and profits if they exhibited ideal behavior profile of:
(1) buying all services offered by the firm, (2) using these to the exclusion of any purchases from
competitors, (3) paying full price?
How long, on average, do customers remain with firm?
What impact would it have if they remained customers for life?
35
Summary (1)
Customer loyalty as an important driver of profitability for firms so firms need toAssess value of loyal customerNarrow gap between actual and potential
customer value
To understand the customer-firm relationship, firms should establish a relationship with customers by creating “membership” relationships
36
Summary (2)
Wheel of Loyalty shows how firms can: Build a foundation of loyalty
Create loyalty bonds
reduce churn drivers
Building a foundation of loyalty involves: Good fit between customer needs and capabilities
Searching for value, not just volume
Tiering services effectively
Obtaining customer satisfaction through service quality
37
Summary (3)
Customer loyalty bonds include: Reward-based bonds Social bonds Customization bonds Structural bonds
Bonds can also be created through membership relationships and loyalty programs
Strategies for reducing customer defections include: Analyzing customer defections and monitoring declining
accounts Addressing key churn drivers Implementing effective complaint-handling and service
recovery procedures Increasing switching costs
38
References
Philip Kotler and Kevin Lane Keller. “Marketing Management 13th Edition” Pearson Prentice Halls 2009.
Christopher Lovelock and John Wirtz. “Service Marketing 6th Edition” Pearson Prentice Halls 2007.
Bernd Heinrich. “Transforming strategic goals of CRM into process goals and activities” Business Process Management Journal,Vol.11, No. 6, 2005, pp: -709723
John Gaffney. “Customer win-back strategies represent revenue opportunity in tight market“ 2009
อนุ�ชิ�ต เที่�ยงธรรม Marketeer ฉบั�บัที่� 36 กุ�มภาพั�นุธ� 254639
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