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
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
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
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
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
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
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
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
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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