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Chapter 15
Customer Retention
Chapter 15
Customer Retention
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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
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THE INCREASING IMPORTANCE OF CUSTOMER RETENTION
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”
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THE INCREASING IMPORTANCE OF CUSTOMER RETENTION
THE INCREASING IMPORTANCE OF CUSTOMER RETENTION
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
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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
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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.
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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
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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
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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
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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
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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.
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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
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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
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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
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THE BENEFITS OF GUARANTEESTHE BENEFITS OF GUARANTEES
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
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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
THE BENEFITS OF GUARANTEESTHE BENEFITS OF GUARANTEES
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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
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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
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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
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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
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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