Essay on Customer Retention

August 17, 2017 | Author: ChefJumboTheSoundchef | Category: Employee Retention, Customer Experience, Strategic Management, Corporate Jargon, Sales
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Essay on Customer Retention: Why is Customer Retention Important?...


UNIVERSITY OF CANBERRA Division of Communication and Education School of Professional Communication


CustomerRetention “Many recent books on Marketing Communication stress the importance of customer retention. Explain why this is important and the strategies available to achieve this goal”

Lecturer: Raveena Singh Presented by: Kraivich Kraisintu ID3003196 Submission date: 21st October 2005

Customer Retention, its importance & strategies


Customer Retention, its importance & strategies ‘It boils down to this: When you build a plant, it starts depreciating the day it opens. The well-served customer, on the other hand, is an appreciating asset. Every small act on her or his behalf ups the odds for repeat business, add-on business and priceless word-ofmouth referral.’

Tom Peters

‘Today’s smart companies do not see themselves as selling products; they see themselves as creating profitable customers. They not only want to create customers. They want to “own” them for life.’

Philip Kotler

“MBNA, one of the world’s largest credit card companies, found that an increase by 5% in retention rate contributed to 60% increase in company’s retained earnings within five years1.”

Regardless of economic condition, loyal customers are always of vital importance to the companies, even non-profit organizations would find it inevitable to retain their brand believers and contributors to thrive and success in today’s fast-paced market environment, where consumers are becoming harder to please, they are smarter, more demanding, less forgiving, and they are approached by many competitors providing equivalent or better offerings2, as a result, the challenge is not producing satisfied customers, but delighted and loyal customers. 1

Loyalty: Put a New Lens of Loyalty to Magnify Profitability (Thai Edition), Reichheld F. & Schefter P., Page 47, October 2004, ExperNet 2 Marketing Management, Eleventh Edition, Kotler P., Page 73, 2003, Prentice Hall

Customer Retention, its importance & strategies


So what is customer retention? Many Integrated Marketing Communications books focus upon Customers and Customer Retention as it is the center of a Customer-Centric integrated organization, which is one of the eight guiding principles of IMC 3, surprisingly; very few of them have defined “Customer Retention”, despite the word itself being so generic and could seem easy to understand, 80% of the customer retention program failed4. The definitions of customer retention are as follow:-

-“Customer retention is the marketing goal of keeping your customers from going to the competition” Adobe Systems Incorporated

-“The philosophy of treating customers so well that they lack any reason to go anywhere else. The philosophy of building your business on the basis of repeat sales, past customers and word-of-mouth recommendations” H. Gerard Gaudet

-“Customer Retention is a tactically driven approach based on customer -behavior. It is the core activity going on behind the scences in Relationship Marketing, Loyalty Marketing, Database Marketing, Permission Marketing and so forth” Anonymous


IMC The Next Generation, Schultz D. & Schultz H., Page 50, 2003, McGraw Hill Experiential Relationship Management, Dejkriankraikul C., Kanawun N. & Saetung T., Page 17, 2002, Amarin Printing & Publishing 4

Customer Retention, its importance & strategies


The first and second definition, by Adobe Systems Incorporated and H. Gerard Gaudent respectively, do not thoroughly cover what customer retention really does, it is not only to prevent customers from turning to competitors;

Argument: Customers are not “only” leaving to competitors or anywhere else, they have other reasons to go

There are six types of customers who leave, Price, Product, Service defectors are those leaving to competitors, whereas Market Defectors, who are lost but not to any other business as they may go out of business or to another market, Technological Defectors, who switch to products offered by companies outside the industry and, Organizational Defectors, who switch due to internal or external politics5, are leaving for other reasons.

Besides, most definitions often state that customer retention is to “keep customers” “emphasis on past sales” or “repeat purchase”, which could not be truer; however, such actions can only be implemented after a “sale”, in this ever changing market environment, with so fierce competition like never before, focusing only on postpurchase retention might no longer be enough.

Proposition: Customer Retention should start even before the business acquires a customer


Customer retention: a potentially potent marketing management strategy, Ahmad, Rizal, Buttle, Francis, Journal of Strategic Marketing, 9, 2001

Customer Retention, its importance & strategies


Customer retention should start even before they become “customers”, that is to deliver the total brand experience before, during, and after sales for the utmost customer satisfaction6. However, according to Philip Kotler, as proposed in his book “Kotler on Marketing”, not every customer should be retained7, this issue will be discussed later in the following session.

From the above arguments, the definition of customer retention has been redefined. The new proposed definition is as follows:-

Proposed Definition of Customer Retention: Customer Retention is to establish endless relationships between the company and “worthwhile” customers which primarily aims at delivering customer experience that starts from acquiring, keeping and always delighting them in such a way that they will, under any circumstances, never leave and always stay loyal to the company.

Although there might be new concepts of customer retention and the strategies to achieve that everyday, they all rely on the bottom line that; “A highly satisfied customer stays loyal longer, buys more as the company introduces new products and upgrades existing products, talks favorably about the company and its products, pays less attention to competing brands and is less sensitive to price, offers product or service ideas to the company, and cost less to serve than new customers because transactions are routine.” And from all of these, it finally comes to one of the 6

Experiential Relationship Management, Dejkriankraikul C., Kanawun N. & Saetung T., Page 42, 2002, Amarin Printing & Publishing 7 Kotler on Marketing: How to create, win and dominate markets, Kotler P., Page 128, 1999, The Free Press

Customer Retention, its importance & strategies


bottom lines for every business; the company can make more profits, reduce operating cots and increase consumer switching cost as a result of retaining customers.

After redefining customer retention, it could be helpful to know what customer retention has been, before deciding what it should be in the future. Since the Industrial Revolution, most manufacturing companies have used production-oriented operations. They have traditionally focused on making products and then promoting those items to customers, hoping that enough people will buy them to cover costs and gain profits. The shelves of local grocery store show how a product orientation affects the marketplace. According to a study, a number of new products found in grocery stores each year has grown from less than 3,000 a year in 1980 to more than 17,000 a year today.

The emphasis on production made the firms focus on individual sales or transactions, which involves buyer and seller exchanges characterized by limited communications and little or no ongoing relationships between two parties. In such transaction-based marketing, the primary goal is to entice a buyer to make a purchase based upon reasons such as low price, convenience, packaging, or similar inducements. This activity serves a short-term goal, which is creating a sale now. While this style of marketing is still widespread, many organizations are trying a new approach, they have found that creating long-term relationships with customers, that is to be able to retain them, pays off in increased sales and decreased marketing costs.

Customer Retention, its importance & strategies


Transaction-based marketing was the norm for decades, but now businesses understand that they must do more than simply creating products and then selling them. They started to focus upon customer life time value and relationship marketing, and customer retention is a key to achieve that8.

Let’s now go straight into the essay’s topic, why customer retention, and how is it important? These are some interesting facts about customer retention9: -Acquiring new customers can cost five times or more than the cost involved in satisfying and retaining current customers. It requires a great deal of effort to induce satisfied customers to switch away from their current suppliers. -The average company loses 10 percent of its customers each year. -A 5 % reduction in the customer defection rate can increase profits by 25 percent to 85 percent, depending on the industry. -The customer profit rate tends to increase over the life of the retained customer. -If the company were to be sold, the acquiring company would have to pay not only for the plant and equipment and the brand name, but also for the delivered customer base, namely, the number and value of the customers who would do business with the new firm.

The following are economic benefits of customer retention as proposed by Ahmad, Rizal, Buttle and Francis in Journal of Strategic Marketing. The reason why this proposition is used is because, compared to other propositions, it provides adequate theoretical

8 9

Contemporary Marketing Wired, Ninth Edition, Boone L. & Kurtz D., Page 334, 1998, The Dryden Press The customer revolution, Pipatsaereethum K., Page 56, 2005, Matichon Press

Customer Retention, its importance & strategies


perspectives, at the same time it could be very practical too. However, several arguments were made regarding the benefits of customer retention.

1. Savings on customer acquisition or replacement costs Most marketing and marketing communication books often said that acquiring new customer would cost less than retaining the existing ones, in which the ratio, whether it is 5:1, or 7:1, depending upon the industry where the business is in. The following is a proof, by Philip Kotler:-

Is the NEW customer worth getting?10 Let’s have a look at this following example, The cost of acquiring new customer is as follows

1. Annual cost of a salesperson 2. Number of annual calls by a salesperson 3. Cost of an average sales call (1/2)

$100,000 200 $500

4. Average number of sales calls to convert a Prospect into a customer 5. Cost of attracting a new customer (CAC) (3x4)

x4 $2,000

The $2,000 cost is actually an underestimate, because we are omitting the cost of IMC and operations as well as the fact that not all prospects will be converted into customers.


Kotler on Marketing: How to create, win and dominate markets, Kotler P., Page 128, 1999, The Free Press

Customer Retention, its importance & strategies


Now suppose this company estimates average customer lifetime profit:

1. Annual customer revenue 2. Average number of loyal years 3. Company profit margin 4. Customer lifetime profit (CLP) (1x2x3)

$10,000 x2 x .10 $2,000

Even though the estimate of CLP is overstated as it omits the cost of maintaining the account through salesperson visits, ads and many more. The conclusion is that the company is paying more to get a new customer than the customer himself is worth. As a result, the company must find a way to reduce CAC and increase its CLP. The reduce CAC, the company must reduce some operating costs and increase the efficiency of prospect conversion, whereas to increase CLP, the company must sell more to each new customer, keep them for more years, and sell them more profit items.

Despite the fact that the cost of acquiring new customers, which has already been proven, is higher than the cost of retaining existing ones, it does not necessarily mean that the budget for customer acquisition could be reduced when the retention rate appears to be higher, especially if the business is new and still lacks of solid customer base, as a result, these two are completely separated budgets.

Argument: The rate of customer retention does not necessarily imply savings on customer acquisition

Customer Retention, its importance & strategies


Hypothesis: The relationship between customer retention and customer acquisition rate is not always directly proportional, there could be some other factors, for example stage of company development or corporate strategy that could affect this relationship

Furthermore, according to the proposed definition of customer retention, customer retention starts even before we acquire them, this could as well affect acquisition cost, according to the following proposition;

Proposition: Apart from customer retention, business should also focus upon customer acquisition, not number of customers acquired, but the quality of how a particular customer is acquired, to deliver a great brand experience using Integrated Marketing Communication from the day a customer first meets the brand.

Looking from this proposition’s perspective, it is needless to say that the company should retain customers than acquire new ones; it is an integrated function in which each of them supports one another. But can the business still save cost from customer retention? Yes, as stated in the proposition, the business should not focus upon number of customers acquired, but the quality of how a particular customer is acquired, as a result, customer retention can still cut costs associated with acquiring new customers. However, there could be a cost for improving customer acquisition, but consider the possible increase in CLV (Customer lifetime value), this could be worth.

Customer Retention, its importance & strategies


2. A guarantee of base profits as existing customers are likely to have a minimum spend per period. Consider the following diagram:-

Figure 1: Customer Retention Diagram (source: “Customer Equity Management”, Robert Shaw) Figure 1 proves a guarantee of base profits by retained customers, even though no, or very few new customers are acquired, there are still revenues from repeat purchases, in other words, retention has its own economic value.

3. Growth in per customer revenue over time When we talk about growth in per customer revenue over time, many books suggest this following formula to measure Customer Lifetime Value (CLV) as follow:Calculating rough Customer Lifetime Value11, as proposed by Professor Philip Kotler


Kotler on Marketing: How to create, win and dominate markets, Kotler P., Page 128, 1999, The Free Press

Customer Retention, its importance & strategies

1. Annual customer revenue 2. Average number of loyal years 3. Company profit margin 4. Customer Lifetime Value (CLV) (1x2x3)

12 $10,000 x2 x .10 $2,000

This formula is omitting acquisition cost as well as retention cost. Some books have included such costs into formula, some other books propose a complex mathematic equation, but still there is no possible add-on sales and add-on selling costs, which is contributed by database marketing in IMC

Proposed Formula: Customer Lifetime Value = Average profit margin x [(Annual Customer revenue x Average number of loyal years) - (acquisition cost per customer+ retention cost per customer) + (add-on sales per customer - add-on selling costs per customer)]

Each variable in the above formula can be substituted by either a rough estimated number or a complex mathematical equation for the maximum accuracy.

4. A reduction in relative operating costs as firms can spread the cost over many more customers and over a longer period Consider the following graphs:-

Customer Retention, its importance & strategies


Figure 2: Customer Trends (source: “Customer Equity Management”, Robert Shaw)

Figure 3: Financial Trends (source: “Customer Equity Management”, Robert Shaw)

From Figure 2, this company obviously uses customer retention as a key strategy, they are trying to increase the number of retained customers at the same time acquire new customers at a decreasing rate, from Figure 2, surprisingly, due to customer retention,

Customer Retention, its importance & strategies


revenue, gross contribution and net profit grow. Moreover, the gap between revenue and gross contribution is getting wider, implying that the company earns more contribution margin (Revenue minus costs), which also implies lowered operating costs.

5. Free of charge referrals of new customers from existing customers According to Tom peters, ‘It boils down to this: When you build a plant, it starts depreciating the day it opens. The well-served customer, on the other hand, is an appreciating asset. Every small act on her or his behalf ups the odds for repeat business, add-on business and priceless word-of-mouth referral’. He, and Ahmad, Rizal, Buttle, Francis who proposed the six economic benefits of customer retention, conclude that customer retention refers to word-of-mouth referral, however, from my point of view, not every retained customer will talk favorably about the brand to other people, this should depend upon the stage of loyalty in which a customer is in;

Argument: Retaining customers does not always imply free-of-charge referrals

There are a number of retained customers whose loyalty does not yet reach some certain stage and thus when they are not loyal enough, they have no reason to promote the brand. The theory that supports this argument belongs to Payne and Rickard, who proposed “The relationship marketing ladder of customer loyalty”

Customer Retention, its importance & strategies


Figure 4: The relationship Marketing ladder of Customer Loyalty (Source: Payne and Rickard [1993]) Those who are talk favorably about the company are most likely in the stage of advocate and supporter, but retained customers should be somewhere between customers turning to clients, to advocate, as a result, certainly only a partial of retained customers will refer to other people.

6. Price premiums as current customers usually do not wait for promotions or price A study reveals that sales promotions which focus upon price reduction only get 30% new customers, the rest are loyal customers who will still buy without any sales promotions12. As a result, there is no reason to run sales promotion and compete in price wars if there customers are loyal enough.


Experiential Relationship Management, Dejkriankraikul C., Kanawun N. & Saetung T., Page 22, 2002, Amarin Printing & Publishing

Customer Retention, its importance & strategies


Proposition: Sales promotions should be the last way for the company to boost the sales, if customers are so well treated, retained and are loyal to the company, the switching cost should be increased, and there is then no reason for the company to go into the price-war battle.

Apart from economic benefits, there is also non-economic benefit, which is, Increased customer trust, commitment, loyalty and cooperation, which are all the results of customer retention; however, there are more of non-economic benefits which are to be proposed in the next few lines.

New Proposed Benefits: Benefits for customer-centric organization implementing IMC Customer insights are of vital importance for organizations implementing IMC, as a customer centric organization uses outside-in planning, which starts from customers. The more the company is able to retain customers, the more they know about customers as they have more time to learn from customers and build their solid customer database.

Better offerings and treatments for customers This is similar to the first proposed benefit “Benefits for customer-centric organization”, but looking from the viewpoint of customers, as the company knows more about customers, they could be able to deliver better offerings which better suit customers’ preferences. Moreover, the database, along with Integrated Marketing Communication

Customer Retention, its importance & strategies


plan, enable the company to know what customers like and dislike, and the way to treat and please them individually.

Employee Retention From the opening case “MBNA, one of the world’s largest credit card companies, found that an increase of 5% in retention rate contributed to 60% increase in company’s retained earnings within five years.”

This is a continuing story, the management of MNBA said customer Retention is not only the key to making huge profits, but it is also a major part of the “profit making engine” in the company, which enhances customer’s loyalty as well as employee’s loyalty.13

This is how it works, favorable retention rate brings about higher share, lower cost of acquiring new customers and service, the company is then able to give more incentives to its employees, which reduces turnover rates, and when they work longer, they become more experienced, as they become more experienced, they can better serve the customers, the retention rates for both are thus higher.

Before going to the strategy part, it would be very helpful to know if all customers are worth retaining, as the propose definition suggests that only “worthwhile” customers should be retained. While all customers are important, some are more important than


Loyalty: Put a New Lens of Loyalty to Magnify Profitability (Thai Edition), Reichheld F. & Schefter P., Page 47, October 2004, ExperNet

Customer Retention, its importance & strategies


others due to recency, frequency and monetary value. Companies usually think their largest customers are the most profitable ones and their smallest are the least profitable ones, but they seem to disregard the fact that company’s largest customers are most likely to get the highest discounts and demand the most services whereas medium-sized customers tend to demand less.

Therefore, companies must fine the way to measure individual customer profitability, and that is why they are starting to apply activity-based costing (ABC) to determine the actual cost of services delivered to each customer so that the customer profitability can be determined.

The 20/80 rule, which says that 20% customers contribute 80% to company’s total revenues, has been modified recently into the 20/80/30 rule14, the poorest 30% of the company’s customers cuts the company’s potential profits in half has been added, especially in Banking industry, some banks report that they lost money on 40 percent of their weakest retail customers. There are two ways to do with those 30%, some companies say “fire them” the other say “How can we turn them into profitable ones?”

So, are all customers worth retaining? No, at least not those who can not be turned to profitable ones.15


IMC in Action, Lohtongkum T., Page 136, 2002, Tipping Point Press Kotler on Marketing: How to create, win and dominate markets, Kotler P., Page 138, 1999, The Free Press 15

Customer Retention, its importance & strategies


Let’s now have a look at the strategies to achieve the goal, but due to the proposed definition of customer retention and arguments discussed earlier in the beginning of this essay, ‘Customer Retention is to establish endless relationships between the company and “worthwhile” customers which primarily aims at delivering customer experience that starts from acquiring, keeping and always delighting them in such a way that they will, under any circumstances, never leave and always stay loyal to the company.’

This definition uses customer experience as a main strategy to achieve the goal, so strategies to achieve this must totally been redefined too, unfortunately, most IMC and customer retention books only suggest after sales service as the way to keep customers, besides, most of the suggested strategies look more like “tips” than strategies, which look in a broader term so that readers can use the proposed strategies as a guideline and implement in their own ways to suit the industry that the business is in and more importantly the customers that they have; as a result, the following strategies are all my propositions, which are backed by some other sources

At every stage of the following strategies, customer experience should be determined, whether they should feel satisfied, warm, confident and etc. to create brand value and to reflect Customer Experience Platform that we want customers to touch or feel. For instance:Customer Experience Platform 16 Apple – Creative, Friendliness Amazon – Completeness, Convenience 16

Practical IMC, Pongsataporn S., Page 121, Nut Republic

Customer Retention, its importance & strategies


Dell – Customizability Disney – Happy, with family Intel – Speed, Reliability

1. Continuing Sales Using sales promotion to attract customers and generate one single sale from that is not enough due to the fact that the cost of acquiring new customers is, as proven earlier, very high, as a result, in order for the firm to make profits, they must find a way to make customers purchase more often, along with the best experience they can have, by offering what they expect and even beyond that. For example, in Thailand, more than 100,000 grocery stores were wiped out by the modern trade such as Tesco Lotus, BigC and 711(Seven Eleven). “Freshmart”, started out as a very small grocery store in Thailand in 1995, used its relationships with customers in the village to generate sales and avoid price wars with those big stores. They started out from analyzing the weaknesses of the modern trade as follows, 1. Modern trade stores didn’t know their customers, didn’t know their faces, didn’t know where they lived, what they did was greeting customers when they came in and saying “Thank you please come again” when they went out. 2. And because of #1, because the company didn’t really know their customers, credit purchases were not possible, they couldn’t take phone orders and there was no home delivery

Customer Retention, its importance & strategies


Hypothesis: Given that no technology is used, small companies will be able to create better relationships with customers than larger ones

After knowing their weaknesses, Freshmart started to build their own database, starting from building customer profiles, purchase records, they knew when families living in that area last purchased sugar, tissue paper, beer, cigarette or snacks. So they started greeting customers by their names and asked where they lived, and from the purchase records this small store knew when these families would run out of supplies, and used telephone to generate sales. Moreover, they gave 7-day credit term which made it easier for customers to buy, so even though there was also 7-11 in that village, Freshmart was still able to compete with it. Unfortunately, when Freshmart started to grow, they franchise their business, and as a result, they lost control in terms of customer relationship management, they are now like any other modern trade stores competing in price wars.

2. Emphasize on during and after sales service Very often many companies only emphasize on “before sales service” 17, they give customers a lot of promises, but during the sales, it becomes a duty of retailers or dealer, and what the companies do is to hope that they will serve customers well and will be able to answer every question that customers may ask. After the purchase, many times service representatives are outsourced, so the companies have little or no control over it, which is not an excuse for poor after-sales customer service. Customers will not blame the outsourced company, but the brand that they purchased.


The customer revolution, Pipatsaereethum K., Page 96, 2005, Matichon Press

Customer Retention, its importance & strategies


Hypothesis : B2B (Business-to-Business) relationships affect B2C (Business-toConsumers) relationships

Therefore, companies must be able to manage good customer experience, starting from pre-purchase, during-purchase to post-purchase. The service quality, in every stage, must be strictly controlled to ensure customer satisfaction, thus the companies need to maintain not only good relationships with customers but also retailers, dealers as well as the outsourced companies.

3. Focus on Total solution or End results, not only on Features and Benefits -Customers want to make holes in different sizes, not drills -Customers want security, not insurance papers -Customers want clean clothes, not detergents -Customers want hygiene in their mouth, not bamboo toothpicks -Customers want to look good and charming, not cosmetics Looking at end results helps enhance value and customer experience, which finally leads to good relationships, for example, OM Scott & Son, a company that sells grass seeds, every year they needed to send business plan to bank to get loans approved. The banking officer said “We actually didn’t care much about your plan because every year you hit the target sales, we are confident that there shouldn’t be any big problems with your business, but could you please help us? We used your glass seeds but now our grass field doesn’t look so good, there are brown spots on the field. Could you help us?” From that moment, the owner of OM Scott & Son started to understand what his business was all

Customer Retention, its importance & strategies


about, he didn’t sell seeds, but he sells beautiful grass field. Then he knew how to satisfy customer, he expanded his business to grass fertilizers, glass cutters, field decoration, and the company finally became one of the biggest companies in grass & gardening tools in the United States.

4. Thrive for the best customer experience This is of vital importance to customer retention, being able to retain them or not greatly depends upon the experience a customer has, every contact point or touch point could bring about great customer experience, starting from pre-purchase, during-purchase to post-purchase. Consumption process of customers should also be taken into consideration because experience could be built at every stage of the process.

For example, before sales, the company must arouse the interest and create demand for the product, find ways to motivate their wants and needs when they encounter a problem for their best experience. The company should also make customers feel acquainted with the brand in order to maintain good relationships with them

During sales, the firm may help customers simplify their purchase decisions, using IMC tools, for the very best experience, customer convenience, such as variety of payment methods, installment plans, delivery services should also be offered, in other words, enhancing the 4C’s in marketing communications will dramatically help enhance customer experience.

Customer Retention, its importance & strategies


After sales, product storage, product installation, training, after sales service are all possible consumption processes that consumers need to go through, the process depends on the product category or industry that the company is in.

Hypothesis: If favorable experience is built into every consumer’s consumption process, customers should be delighted and stay loyal to the brand.

5. Use “indicators” for every experience delivered to customers at every contact points and consumption process Without accountability, it is like ship without a rudder, indicators are used to control experience, to illustrate this, consider the following example:Contact Point Telephone Reservation



Answer the call within one -Number of telephone ring ring, tell the hotel’s name, before somebody answers speaker’s name, and greet the phone customers by their name for -The speed of getting back retained customers to customers Meet bellboy Get the luggage within five -Time taken to take luggage minutes with smiles -Pleasant Personality At Reception Smile, look into customer’s -Save customer’s time eyes before greeting him, -Smiles finish all the check-in -First Impression processes within five minute Table: A part of experience enhancement program at every contact point with indicators at Hilton Hotels (Source: Experiential Relationship Management, page 180)

Customer Retention, its importance & strategies


6. Emphasis not only on customer retention, but also employee retention Employee retention could bring about customer retention, as discussed earlier in the MBNA case, they focused upon customer retention, which brought them more profits so that the company allocated some portion of the profits to be used as employee’s incentives, which increased loyalty and productivity, as a result, they stayed longer, as they stayed longer they knew customers better and served them better, better service increases customer retention rate, and all of these have become an endless loyalty & retention cycle.

Hypothesis: Employee retention is directly proportional to Customer retention

And we are finally at the last part, the challenges of customer retention, customer retention becomes more and more challenging everyday, let’s see why.

Technology & Competition Technology enables big business to understand and keep records of their customers just like the way small grocery stores do, as a result, customer might be very satisfied in the first place. Unfortunately, many companies start to realize the importance of customer retention and start their retention program, so what satisfies customers today may be just industry’s standard practice tomorrow, in other words, customer retention could intensify the competition in the industry. Therefore, Customer Retention must be developed and improved at all times, or soon it will mean nothing.

Customer Retention, its importance & strategies


Ethical Issue Customer Retention is often linked with the company’s database, and now the question is “Is the customer really want to be in that database?”. The company’s excuse that having a particular customer on the database enables them to know a customer better and serve him better, on one hand, it may surprise him; on the other hand, he could be very frustrated if he does not want so, because the above excuse is not a reason for putting him into the database.

Hypothesis: Database marketing helps increase retention rate only when that particular customer is willing to be on the database

If customer does not see the value of being in the database, most likely he/she will ignore the communications (Lohthongkum, T 2002). For the database program to be successful, marketer must design the program from the customer’s point of view.

Selecting customers to retain Determining the ones to retain and not retain using their economic values could be the easiest way to do it. Unfortunately, this only takes demographic information into account, in IMC, we talk more in terms of psychological and behavioral. Some, or even many customers, do not have the “natural” characteristics necessary for companies to build sustained relationships and increase retention (Grion, R 2003). Despite the fact that the companies have been well nurturing these customers, they may not be what companies want them to be, because companies seem to disregard the “nature”, the “natural

Customer Retention, its importance & strategies


characteristics” of those customers. To illustrate this, let’s think about parents nurturing their child in the best possible way, hoping that he will grow up and be a doctor, but once he grows up, he has his own natural characteristics which cannot be molded, he could want to be the artist in which it is completely irrelevant to the way he is nurtured. Unsurprisingly, customers who don’t have the “natural” characteristics necessary for companies to build sustained relationships and increase retention, no matter how much the company spends, it could be worthless.

Therefore, I would suggest that, in the world of rapid technology development, behavioral and psychological characteristics should also be taken into consideration, not only the economical value of a particular customer.

The balance of acquisition and retention My new proposed definition also takes acquisition into the retention program as it states that customer retentions starts from the day we acquire them, normally these two could be completely irrelevant budgets, but as customer acquisition is becoming a part of customer retention, customer acquisition and retention are integrated, it is thus a challenge to balance the efforts and budget between them.

Last but not least, the company must make a very strong commitment to its retention programs. The payoff in loyalty and retention may be years to come, so everyone must be in it for the long term. This philosophy works only by making a deep, sincere commitment to customer retention.

Customer Retention, its importance & strategies


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Customer Retention, its importance & strategies


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Shaw, R 2003, Customer Equity Management. The United Kingdom: Cranfield University, School of Management Payne, A , The Value Creation Process in Customer Relationship Management. The United Kingdom: Cranfield University, School of Management Rodgers, K & Longworth, D 2003, Redefining Customer Relationship Management: Pragmatic CRM for small and mid-sized business. The United States: Microsoft Business Solutions. Grion, R 2003, ‘Journal of Integrated Communications 2002-2003 issue’, Rethinking Customer Acquisition before Talking Retention. pp. 29-33.

Thai References Phongsataporn, S 2003, Practical IMC. Thailand: Nut Republic Schefter, P & Reichheld, F 2003, Loyalty: Put a New Lens on Loyalty to Magnify Profitability. Thailand: Expernet Pipatseritham, K 2005, The Customer Revolution. Thailand: Matichon Press Lohthongkam, T 2002, IMC in Action. Thailand: Tipping Point Press Dejkriankraikul, C, Kanawun, N & Saetung, T 2002, Experiential Relationship Management. Thailand: Amarin Printing & Publishing Subpuedphol, A 1999, Strategies for Customer Acquisition and Customer Retention. Thailand: McGraw Hill Serirat, S 1997, Advertising and Promotion. Thailand: Diamond in Business World


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