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  1. 1. C hapter 15 C ustomer R etention
  2. 2. CUSTOMER RETENTION <ul><li>More futuristic than customer satisfaction </li></ul><ul><li>Focuses marketing efforts to current customers </li></ul><ul><li>The opposite of conquest marketing </li></ul>
  3. 3. THE INCREASING IMPORTANCE OF CUSTOMER RETENTION <ul><li>Markets are stagnant </li></ul><ul><ul><li>decrease in population growth </li></ul></ul><ul><ul><li>GNP growth increasing at a decreasing rate </li></ul></ul><ul><li>Increase in competition </li></ul><ul><ul><li>relative parity </li></ul></ul><ul><li>Rising costs of marketing </li></ul><ul><ul><li>increase in the cost of advertising </li></ul></ul><ul><ul><li>loss of “share of voice” </li></ul></ul>
  4. 4. THE INCREASING IMPORTANCE OF CUSTOMER RETENTION <ul><li>Changes within the channels of distribution </li></ul><ul><ul><li>distance marketing </li></ul></ul><ul><li>Customers have changed </li></ul><ul><ul><li>more informed </li></ul></ul><ul><ul><li>increasingly skeptical </li></ul></ul>
  5. 5. THE BENEFITS OF CUSTOMER RETENTION <ul><li>Profits derived from sales </li></ul><ul><ul><li>Reducing defections by 5% can boost profits 25% to 85% </li></ul></ul><ul><li>Profits from reduced operation costs </li></ul><ul><ul><li>It is 3 to 5 times cheaper to keep a customer than to recruit a new one </li></ul></ul><ul><li>Profits from referrals </li></ul>
  6. 6. How Much Profit a Customer Generates Over Time Source: Adapted from Frederick F. Reichheld and W. Earl Sasser, Jr., “Zero Defections: Quality Comes to Services,” Harvard Business Review (September-October 1990, pp. 106-107.
  7. 7. <ul><li>Maintain the proper perspective </li></ul><ul><li>Build trusting relationships </li></ul><ul><li>Protect confidential information </li></ul><ul><li>Tell customers the truth </li></ul><ul><li>Provide full information (pros and cons) </li></ul><ul><li>Be dependable, courteous, and considerate </li></ul><ul><li>Be actively involved in community affairs </li></ul>CUSTOMER RETENTION TACTICS
  8. 8. CUSTOMER RETENTION TACTICS <ul><li>Monitor the service delivery process </li></ul><ul><li>Properly install products and train customers </li></ul><ul><li>Be there when you are needed the most </li></ul><ul><li>Provide discretionary effort </li></ul>
  9. 9. IS IT ALWAYS WORTHWHILE TO KEEP A CUSTOMER? <ul><li>The account is no longer profitable </li></ul><ul><li>Contract conditions are no longer being met </li></ul><ul><li>Customers demands are beyond reasonable </li></ul><ul><li>Customer is abusive to the point that it lowers employee morale </li></ul><ul><li>Customer’s reputation is so poor that it tarnishes the reputation of the selling firm </li></ul>
  10. 10. EMERGING CUSTOMER RETENTION PROGRAMS <ul><li>Frequency Marketing </li></ul><ul><ul><li>Primary goal is to encourage existing customers to purchase more often from the same provider </li></ul></ul>
  11. 11. COMMENTS ABOUT FREQUENCY MARKETING <ul><li>The Leaky Bucket Theory </li></ul><ul><ul><li>Replaces lost customers with new customers </li></ul></ul><ul><ul><ul><li>10% of customers tend to be loyal </li></ul></ul></ul><ul><ul><ul><li>100% of loyal customers are light purchasers </li></ul></ul></ul><ul><li>Polygamous Loyalty </li></ul><ul><ul><li>Customer loyalty is generally divided among a number of fixed brands </li></ul></ul><ul><ul><ul><li>Frequent flyer cards…3.1/traveler </li></ul></ul></ul><ul><li>Double Jeopardy </li></ul><ul><ul><li>Small brands have fewer buyers who buy less frequently. </li></ul></ul>
  12. 12. EMERGING CUSTOMER RETENTION PROGRAMS <ul><li>Relationship Marketing </li></ul><ul><ul><li>Marketing technique based on developing </li></ul></ul><ul><ul><li>long-term relationships with customers </li></ul></ul><ul><li>Aftermarketing </li></ul><ul><ul><li>Emphasizes the importance of marketing efforts after the initial sale has been made </li></ul></ul>
  13. 13. TYPES OF SERVICE GUARANTEES <ul><li>Implicit Guarantees </li></ul><ul><ul><li>An unwritten, unspoken guarantee that establishes an understanding between the firm and its customer </li></ul></ul><ul><li>Specific Result Guarantees </li></ul><ul><ul><li>Guarantees that apply only to specific steps or outputs in the service delivery process </li></ul></ul><ul><li>Unconditional Guarantee </li></ul><ul><ul><li>A guarantee that promises complete customer satisfaction </li></ul></ul>
  14. 14. THE BENEFITS OF GUARANTEES <ul><li>Customer-directed Benefits: </li></ul><ul><ul><li>customers perceive a better value </li></ul></ul><ul><ul><li>perceived risk is lower </li></ul></ul><ul><ul><li>the firm is perceived as more reliable </li></ul></ul><ul><ul><li>helps consumers decide among alternatives </li></ul></ul><ul><ul><li>helps consumers overcome resistance </li></ul></ul><ul><ul><li>helps to overcome negative word-of-mouth </li></ul></ul>
  15. 15. THE BENEFITS OF GUARANTEES <ul><li>Organization-directed Benefits: </li></ul><ul><ul><li>forces the firm to focus on the customer’s definition of good service </li></ul></ul><ul><ul><li>the guarantee states a goal that is communicated to employees and customers </li></ul></ul><ul><ul><li>invoked guarantees provides a measurable means of performance </li></ul></ul>
  16. 16. <ul><li>Organization-directed Benefits (cont’d): </li></ul><ul><ul><li>forces the firm to examine its entire service delivery system for failure points </li></ul></ul><ul><ul><li>serves a source of pride and motivation for team building </li></ul></ul>THE BENEFITS OF GUARANTEES
  17. 17. <ul><li>May be viewed as a “Tacky” marketing ploy </li></ul><ul><li>Is guaranteed due to failures in the past? </li></ul><ul><li>Customers may be too embarrassed to invoke guarantee </li></ul><ul><li>Guarantee may encourage customers not to complain </li></ul><ul><li>Documentation and time for actual refund to be completed </li></ul>RISKS ASSOCIATED WITH GUARANTEES
  18. 18. <ul><li>Prices are high </li></ul><ul><li>The costs of a negative outcome are high </li></ul><ul><li>The service is customized </li></ul><ul><li>Brand recognition is difficult to achieve </li></ul><ul><li>Buyer resistance is high </li></ul>SUGGESTED CONDITIONS FOR OFFERING SERVICE GUARANTEES
  19. 19. <ul><li>Businesses commonly lose 15% to 20% of their customers each year </li></ul><ul><li>Types of defectors </li></ul><ul><ul><li>price defectors </li></ul></ul><ul><ul><li>product defectors </li></ul></ul><ul><ul><li>service defectors </li></ul></ul><ul><ul><li>market defectors </li></ul></ul><ul><ul><li>technological defectors </li></ul></ul><ul><ul><li>organizational defectors </li></ul></ul>CUSTOMER DEFECTIONS
  20. 20. SATISFACTION & DEFECTIONS <ul><li>Satisfaction does not necessarily translate into customer retention </li></ul><ul><ul><li>high satisfaction/low loyalty </li></ul></ul><ul><ul><ul><li>commodity products (no differentiation) </li></ul></ul></ul><ul><ul><ul><li>consumer indifference (low involvement) </li></ul></ul></ul><ul><ul><ul><li>many substitutes </li></ul></ul></ul><ul><ul><ul><li>low cost of switching </li></ul></ul></ul>
  21. 21. SATISFACTION & DEFECTIONS <ul><li>Satisfaction does not necessarily translate into customer retention </li></ul><ul><ul><li>low satisfaction/high retention </li></ul></ul><ul><ul><ul><li>regulated monopoly (or few substitutes) </li></ul></ul></ul><ul><ul><ul><li>dominant brand equity </li></ul></ul></ul><ul><ul><ul><li>high cost of switching </li></ul></ul></ul><ul><ul><ul><li>proprietary technology </li></ul></ul></ul>