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Managing customer retention

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  • 1. Managing Customer Retention Akash C.Mathapati Akash C.Mathapati
  • 2. Customer Retention Customer Retention is the maintenance of the patronage of people who have purchased a companys goods or services once and the gaining of repeat purchases. Customer retention occurs when a customer is loyal to a company, brand, or to a specific product or service, expressing long-term commitment and refusing to purchase from competitors. Akash C.Mathapati
  • 3. Kotler on Customer RetentionSatisfied 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 Akash C.Mathapati
  • 4. Myths about Customer Retention A firm should strive for 100 percent customer retention  It makes sense to treat some customers as “transaction” customers, not relationship ones Maximizing customer retention is synonymous with maximizing a firm’s profits  This would be true if max attainable retention ensured max profits  An easy way to increase retention rates is to offer lower prices to the best customers Akash C.Mathapati
  • 5. Customer Satisfaction Firms often seek to mange customer retention by managing customer satisfaction Firm focuses on achieving a certain level of satisfaction among all customers Although this has some merits these firms can easily become victims of a customer satisfaction trap 20 co’s study Baldrige competition – although customer satisfaction increased in these firms, retention levels either remained unchanged or declined Akash C.Mathapati
  • 6. Model of Customer Retention In this model, there are seven determinants of customer retention:1. Customer expectations versus the delivered quality of the product or service2. Value3. Product uniqueness and suitability4. Loyalty mechanisms5. Ease of purchase6. Customer service7. Ease of exit Akash C.Mathapati
  • 7. Customer Retention Strategy Changing Retention Rates  Increasing spending on retention programs or  Improving the effectiveness of current retention programs  The firm can empower its customer service representatives/add customer service representatives Acquisition – Retention Link  The way expectations set during acquisition affect retention, so do customer retention strategies have implications for acquisition e.g., health club Akash C.Mathapati
  • 8.  Short – Term Losses for Long – Term Gains  A firm may not want to retain all its customers, but the retention of desirable customers is an important goal  The consumers who remain with a firm longer tend to generate higher revenues  It may be in the firms best interest to make suboptimal profits in the short run in order to nurture the customer – firm relationship in long run Akash C.Mathapati
  • 9. Akash C.Mathapati
  • 10. How should a Firm Price Its Best Customers The answer depends on a number of factors, the 2 most crucial of which are the following:  Whether customer price sensitivity increase or decrease as a function of the number of purchase made  The extent of word of mouth among customers Price sensitivity decrease as the number of a customers purchase increases Some literature contradict: although most firms believe that their best customers should be charged less, they often charge them more Akash C.Mathapati
  • 11. Databases & Data sources for Retention  To manage retention process, a firm needs to understand what influences repeat-purchasing decisions. (expectations, actual experience, perceived value & satisfaction)  If we believe that every interaction with the firm and the customers affects the customer’s attitude and satisfaction with firm  This suggest the need for database that track all customer interactions Akash C.Mathapati

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