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Customer Retention &amp Customer Loyalty - MFS

Customer Retention is a strategic process to keep or retain the existing customers. Factors such as ease of exit, ease of purchase, and customer service affect long-term customer behaviour and determine the relationship between seller and buyer. A firm can provide greater value either by offering higher quality and matching the competition on price or by offering the same quality at a lower price.

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Pankaj Kumar
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215 views26 pages

Customer Retention &amp Customer Loyalty - MFS

Customer Retention is a strategic process to keep or retain the existing customers. Factors such as ease of exit, ease of purchase, and customer service affect long-term customer behaviour and determine the relationship between seller and buyer. A firm can provide greater value either by offering higher quality and matching the competition on price or by offering the same quality at a lower price.

Uploaded by

Pankaj Kumar
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPTX, PDF, TXT or read online on Scribd
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Customer Retention and Customer Loyalty

Outline
Understanding Customer Retention
Determinants of Customer Retention Importance to Customer Retention

Customer Retention Models


Customer Retention Approaches Other Customer Retention Tools

Criteria for Selecting CR Approaches

Understanding Customer Retention (CR)


Customer retention is a strategic process to keep or

retain the existing customers and not letting them to diverge or defect to other suppliers or organization for business. The CR process actually begins during acquisition, which creates customer expectations, including perceptions of product value and uniqueness. Initial product usage determines whether these expectations are met. Factors such as ease of exit, ease of purchase, and customer service affect long-term customer behaviour and determine the relationship between seller and buyer.

Determinants of Customer Retention


1. Customer expectations versus the delivered quality of the product or service 2. Value

3. Product uniqueness and suitability


4. Loyalty mechanisms 5. Ease of purchase 6. Customer service 7. Ease of exit (lock-out provisions)

Determinants of Customer Retention Conti..


CUSTOMER EXPECTATIONS VERSUS DELIVERED

QUALITY - Customers do not simply evaluate a product or service on its own merits. They evaluate it relative to their expectations When customer expectations are too high (though this can generate initial trial) and the delivered product does not meet those expectations, the customer will not repeat-purchase A firm must strike the optimal balance between expectations and delivered quality.

Determinants of Customer Retention Conti..


VALUE- we define value as quality divided by price.
A firm can provide greater value either by offering

higher quality and matching the competition on price or by offering the same quality at a lower price. Firms often try to justify higher prices by arguing that they provide greater quality. Quality is difficult to define and measure. Firms should trade off the potential price premium against the risk of customer defection.

Determinants of Customer Retention Conti..


PRODUCT UNIQUENESS AND SUITABILITY

Product uniqueness enhances customer retention rate. It is critical that products remain relevant to customers LOYALTY MECHANISMS - can generate high retention rates even when competing products or services are almost identical. EASE OF PURCHASE- Some products and services are very difficult to find or purchase, which hurts retention. (Scarcity or Purchase Process)

Determinants of Customer Retention Conti..


CUSTOMER SERVICE- Customer service has many

components, and many parts of an organization provide it. 1. What customers will this service approach retain, and for how long? 2. What is the potential asset value of those customers? 3. Does the retention equity created exceed the service cost? EASE OF EXIT- Exit barriers offer one strategy for increasing retention

Importance to Customer Retention


Customers leave service organizations due to service reasons about 2/3 of the times.
Core service problems Service encounter failures Inconvenience Response to failed service Pricing Competition Ethical concerns Involuntary switching/other factors
(Keveaney, S.M., 1995)

Importance to Customer Retention


Reichheld on Customer Retention Service companies must retain the best personnel to win and keep good customers Its impossible to build a loyal bank of customers without a loyal employee base On average, U.S. corporations lose half of their customers in 5 years A typical company has a customer defection rate of 10-30% per year Raising the customer retention rate by 5% can increase the value of an average customer (lifetime profits) by 25-100%

Importance to Customer Retention


The key to customer retention is customer satisfaction- Kotler Satisfied Customers Stay loyal longer Talk favorably about the organization Pay less attention to the competition Are less price sensitive Offer service ideas to the organization Cost less to serve than new customers

Customer Retention Models


A Customer Value/ Retention Model
The CV/retention model offers a good way of

explaining the key relationships among the core elements that create value in an organization Customer value is built through the proper mix of SQIP (service, quality, image & price) - elements that attract and keep customers

The Customer Value/Retention Model


Customer
Attraction

Customer Value

Customer Satisfaction

Loyalty

Business Performance

Shareholder Value

Customer
Weinstein/Johnson, 2003.

Retention

Applications of the Customer Value Retention Model (CV/RM)


The key variables and their relationships to one another are clarified. This provides strategic guidance to management. Second, it stresses long term relationships (retention) but still realizes that some customer defection and attrition will occur so customer attraction must remain a priority. Third, the model is inter-functional and systematic - it ties marketing objectives to the big picture, the financial situation. Feedback loops are also depicted in the Customer

Value/Retention Model.

Customer Retention Models


Usage Analysis and CR Differentiated marketing strategies for user groups: 1st-time users, repeat customers, heavy users, and former users By classifying customer accounts based on usage frequency and variety, companies can develop effective strategies to retain and upgrade customers

Usage Analysis Tools


Heavy, medium, light, former, and nonusers Heavy half segmentation (80/20 rule) Users vs. nonusers, competitive users Loyal (degree) versus Disloyal customers Product/service applications by user group Geographic comparisons (customer penetration indices, growth)

4-Tier Usage Segmentation


Platinum Tier the companys most profitable customers

Gold Tier seek price discounts, less loyal, and use

multiple vendors Iron Tier essential customers who provide the volume to utilize the firms capacity, but their spending levels, loyalty, and profitability do not merit special treatment Lead Tier customers who cost the company money. They demand more attention than they are due given their spending and profitability - sometimes problem customers that complain and tie up resources.
(Rust, Zeithaml, and Lemon, 2000/2003)

Customer Retention Models


RFM Analysis Recency- refers to the last service encounter/ transaction Frequency -assesses how often these customercompany experiences occur Monetary -value probes the amount that is spent, invested, or committed by customers for the firms offerings

How to Do an RFM Analysis


1.

2.

Access a summary of each customers RFM transaction history. This includes most recent purchase, frequency of purchases, and monetary value spent per order. Sort customers by purchase dates in reverse chronological order. Divide the customer list into 5 equal segments. Tag the most recent customer quintile as 1 while the least recent purchases are quintile 5

How to Do an RFM Analysis


Sort your customers by frequency (number of orders) and apply the same methodology as in #2. 4. Sort your customers by monetary value (average $ amount of each order) and apply the same methodology as in #2. 5. You now have created RFM scores for each of your customers, from your best customer segment (111) to your worst (555).
3.

Customer Retention Approaches


CR tactics are short term in nature while CR strategies

create lasting value for customers CR efforts should begin once the firm wins a customer These efforts should include Learning as much as possible about customer needs Responding promptly to any indications of disinterest Making customers feel truly cared for Resolving complaints quickly and efficiently Be willing to negotiate with high-value customers who show signs of inactivity
(Passavant, 1995)

Common/Effective Approaches for Enhancing Retention


Build a customer database/marketing information system
Design ongoing customer programs - continuity

and loyalty-based initiatives Offer long term services membership/subscription programs Custom promotion - use reminder advertising and press releases. Conti..

Common/Effective Approaches for Enhancing Retention


Focus on key accounts and heavy users
Use newsletters/informational materials to stay in touch with infrequent customers

Attend trade shows


Research customers needs and wants Welcome suggestions and complaints

Other Customer Retention Tools


Customer relationship management (CRM), an expensive information technology, is also frequently used by large companies for business usage analyses
The 80/20 principle was integral in determining the focus & location of Fast Industries most important customers SWOT analysis -- strengths, weaknesses, opportunities, and threats -- information can be gathered from each strategic customer

Criteria for Selecting CR Approaches


Efficiency - low cost Effectiveness - likelihood to succeed

Adaptability - strategic fit with the organizational culture


Consistency - works well with the current marketing

plan Competitive advantage Ease of implementation Projected profitability

Thank you

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