Customer Loyalty and Retention strategies

11Customer Retention Strategies 吳明泉博士 2007
Customer LoyaltyCustomer Loyalty
andand
Retention StrategiesRetention Strategies

2Customer Loyalty and Retention Strategies 吳明泉博士 2009
OutlineOutline
 Definition of Customer LoyaltyDefinition of Customer Loyalty
 What Affects Customer LoyaltyWhat Affects Customer Loyalty
 Relationship programsRelationship programs
 Customer life cycleCustomer life cycle
 Reasons for Lost CustomersReasons for Lost Customers
 Customer Retention StrategiesCustomer Retention Strategies
 Problem Identification and ManagementProblem Identification and Management
 Conflicts and customer complaintsConflicts and customer complaints

Customer loyaltyCustomer loyalty
Customer’s commitment or attachment to aCustomer’s commitment or attachment to a
brand, store, manufacturer, servicebrand, store, manufacturer, service
provider, or other entity.provider, or other entity.
 AA behaviorbehavior toward the producttoward the product
 AnAn attitudeattitude to behaveto behave

Behavioral brand loyaltyBehavioral brand loyalty
 Measured byMeasured by proportion of purchaseproportion of purchase
Undivided loyalty AAAAAAAAAAUndivided loyalty AAAAAAAAAA
Occasional switcher AAABAAACAAOccasional switcher AAABAAACAA
Switched loyalty AAAAAABBBBSwitched loyalty AAAAAABBBB
Divided loyalty AAABBBAABBDivided loyalty AAABBBAABB
Indifference ABCDADCDBDIndifference ABCDADCDBD

Churn rate or Attrition RateChurn rate or Attrition Rate
 The rate at which new customers try aThe rate at which new customers try a
product or service and then stop using it in aproduct or service and then stop using it in a
given period of time.given period of time.
 Retention rate = 1 – the attrition rate..Retention rate = 1 – the attrition rate..

Problems with behavioral approachProblems with behavioral approach
 A customer may be making a repeatA customer may be making a repeat
purchase not because of any true loyalty orpurchase not because of any true loyalty or
commitment,commitment,
 But because of convenience, price,But because of convenience, price,
availability, oravailability, or inertiainertia due to habit.due to habit.
 Inertia suggests a low sensitivity to theInertia suggests a low sensitivity to the
brand since purchases are made without abrand since purchases are made without a
real motive for the choice.real motive for the choice.

Attitudinal brand loyaltyAttitudinal brand loyalty
Include favorable attitude that reflects aInclude favorable attitude that reflects a
preference or commitmentpreference or commitment expressed overexpressed over
time. Emotional attachment, evaluationtime. Emotional attachment, evaluation
 No loyaltyNo loyalty
 Inertial loyalty or spurious loyaltyInertial loyalty or spurious loyalty
 Latent loyaltyLatent loyalty

Relationship commitmentRelationship commitment
 An enduring desire to maintain a valuedAn enduring desire to maintain a valued
relationshiprelationship
 Loyal customers, high in repeat purchaseLoyal customers, high in repeat purchase
behavior and strong in attitudebehavior and strong in attitude

Transaction vs. relational continuumTransaction vs. relational continuum
TransactionTransaction RelationalRelational
ObjectiveObjective Make a saleMake a sale Create a customerCreate a customer
CharacteristicCharacteristic AnonymityAnonymity interdependenceinterdependence
Criteria of successCriteria of success Volume price, newVolume price, new
customercustomer
ValueValue
enhancements,enhancements,
repeat exchangerepeat exchange
Interaction toneInteraction tone Sale as aSale as a
conquest, discreteconquest, discrete
eventevent
Sale as anSale as an
agreement,agreement,
continuing processcontinuing process

What affects customer loyaltyWhat affects customer loyalty

Customer satisfactionCustomer satisfaction

 A post-purchase or post-choice evaluationA post-purchase or post-choice evaluation
that results from athat results from a comparison betweencomparison between
those pre-purchase expectation and actualthose pre-purchase expectation and actual
performanceperformance
 Satisfied customers may not be loyalSatisfied customers may not be loyal
customers.customers.
 Xerox’s finding: satisfaction rating 4 is sixXerox’s finding: satisfaction rating 4 is six
times more likely to switch to others thantimes more likely to switch to others than
rating 5.rating 5.
Customer satisfactionCustomer satisfaction

Emotional BondingEmotional Bonding
 Brand affect, brand equityBrand affect, brand equity
 Company attachmentCompany attachment
 Establish feelings of closeness, affection,Establish feelings of closeness, affection,
trust, and respect.trust, and respect.
 IT may limit emotional bonds. PersonalIT may limit emotional bonds. Personal
contacts, non-verbal signals, friendships,contacts, non-verbal signals, friendships,
and personal interactions are criticaland personal interactions are critical
elements.elements.

TrustTrust
 Willingness of customer to rely on theWillingness of customer to rely on the
organization.organization.
 Reduces uncertainty/riskReduces uncertainty/risk
 Honest, fair, and responsibleHonest, fair, and responsible

Choice reduction and habitChoice reduction and habit
 People have tendency to reduce choice.People have tendency to reduce choice.
 There can be a switch cost associated withThere can be a switch cost associated with
change to the unfamiliar, untried, or thechange to the unfamiliar, untried, or the
new. There may be cost in time, money,new. There may be cost in time, money,
and riskand risk

History with the companyHistory with the company
 Corporate ImageCorporate Image
 Contacts and purchase historyContacts and purchase history
 Service experienceService experience
 Intergeneration influenceIntergeneration influence

Multi-faced loyaltyMulti-faced loyalty
Customer loyalty to:Customer loyalty to:
 Brand: promotionBrand: promotion
 Product: productionProduct: production
 Company: public relationsCompany: public relations
 Customers: meeting, chats, reunionCustomers: meeting, chats, reunion
 Price: discounts, couponsPrice: discounts, coupons
 Places: sounds, excitementPlaces: sounds, excitement
 Variety: new options, variations,Variety: new options, variations,

Guidelines for enhancing loyaltyGuidelines for enhancing loyalty

Relationship programsRelationship programs
 Financial IncentivesFinancial Incentives
 Social BondingSocial Bonding
 Structural-interactionStructural-interaction

Financial IncentivesFinancial Incentives
 Increased customer loyalty to price,Increased customer loyalty to price,
incentivesincentives
– Frequent flyer/reader/buyer/visitors… Rewards.Frequent flyer/reader/buyer/visitors… Rewards.
– Discounts, product upgrades, awards, prizesDiscounts, product upgrades, awards, prizes
– Related products or providers expand the netRelated products or providers expand the net
 Relationships concentrate exclusive onRelationships concentrate exclusive on
incentives tend to be weak. Averageincentives tend to be weak. Average
American Consumer: 3.5 programsAmerican Consumer: 3.5 programs

Social BondingSocial Bonding
 Refers to a friendly companionship, trust,Refers to a friendly companionship, trust,
and ties. Increased customer loyalty to theand ties. Increased customer loyalty to the
organizationorganization
– ConnectionsConnections
– Personal insight, recognition, mutual affectionPersonal insight, recognition, mutual affection
– Interpersonal interactions expand the linkInterpersonal interactions expand the link

Structural-interactionStructural-interaction
 Use system design to solve problems,Use system design to solve problems,
reinforce purchases, and recognize thereinforce purchases, and recognize the
importance of each customer.importance of each customer.
– Systemic mass personalization….Systemic mass personalization….
– ManagementManagement
– Cultivation, simulationCultivation, simulation
– Artificial intelligence continues the connectionsArtificial intelligence continues the connections
 Increased customer loyalty to theIncreased customer loyalty to the
experience.experience.

Customer life cycleCustomer life cycle

Reasons for Lost CustomersReasons for Lost Customers
 DissatisfactionDissatisfaction
 Relative AdvantageRelative Advantage
 ConflictConflict
 Loss of TrustLoss of Trust
 Cease to needCease to need
 Novelty SeekingNovelty Seeking

Customer Retention StrategiesCustomer Retention Strategies
 WelcomeWelcome
 ReliabilityReliability
 ResponsivenessResponsiveness
 RecognitionRecognition
 PersonalizationPersonalization
 Reward StrategiesReward Strategies

A welcome strategyA welcome strategy
The organization’s appreciation for theThe organization’s appreciation for the
initiation of a relationship.initiation of a relationship.
• Creating a delightful surprise, making a goodCreating a delightful surprise, making a good
first impressionfirst impression
• First touch: additional customer informationFirst touch: additional customer information
• Reassure the buyers that they have made theReassure the buyers that they have made the
correct choices.correct choices.
• Treat like a first date. Don’t overdo it!Treat like a first date. Don’t overdo it!

ReliabilityReliability
The organization can repeat the exchangeThe organization can repeat the exchange
time and time again with the same satisfyingtime and time again with the same satisfying
results.results.
– Keep promiseKeep promise
– Ensure consistent qualityEnsure consistent quality
– Continuous promotion is still the key.Continuous promotion is still the key.

ResponsivenessResponsiveness
 The organization shows customers it reallyThe organization shows customers it really
cares about their needs and feelings.cares about their needs and feelings.
 Loyal employees create loyal customers.Loyal employees create loyal customers.
Internal marketing.Internal marketing.
 Customer-contacted employees shouldCustomer-contacted employees should
have the authority as well as thehave the authority as well as the
responsibility for date to date operationalresponsibility for date to date operational
activities and CRM decision.activities and CRM decision.

RecognitionRecognition
 Special attention or appreciation thatSpecial attention or appreciation that
identifies someone as having been knownidentifies someone as having been known
before.before.
 People respond to recognition.People respond to recognition.
 Recognition and appreciation helpRecognition and appreciation help
maintain and reinforce relationships.maintain and reinforce relationships.

PersonalizationPersonalization
Use CRM system to tailor promotions andUse CRM system to tailor promotions and
products to the specific customers.products to the specific customers.
 Offer engine: take customer data after it isOffer engine: take customer data after it is
analyzed and applies it to create the offeranalyzed and applies it to create the offer
or message that is appropriate to theor message that is appropriate to the
individual customer. Ex., My site, Clickindividual customer. Ex., My site, Click
stream analysis, free ride, etc.stream analysis, free ride, etc.

Access strategyAccess strategy
 Identify how customers will be able toIdentify how customers will be able to
interact with the organization.interact with the organization.
 General contact, product return, technicalGeneral contact, product return, technical
report, service representative, change areport, service representative, change a
mailing addressmailing address
 Is the access quick and easy?Is the access quick and easy?

A Communication processA Communication process

Organization vs. customer initiatedOrganization vs. customer initiated
communicationcommunication
 InIn organization-initiated communicationorganization-initiated communication,,
organizations must consider the intendedorganizations must consider the intended
message, channel (medium), and receivermessage, channel (medium), and receiver
characteristics.characteristics.
 InIn customer-initiated communicationcustomer-initiated communication,,
consider the establishment of toll free calls,consider the establishment of toll free calls,
web sites, priority access for providingweb sites, priority access for providing
services and collecting customer data.services and collecting customer data.

Customer-initiated communicationCustomer-initiated communication

Reward strategiesReward strategies
 Frequent, best customersFrequent, best customers
 Partnership Management ProgramPartnership Management Program
 Switching costs: financial penalty, time loss,Switching costs: financial penalty, time loss,
psychological barrierpsychological barrier
 Termination PenaltyTermination Penalty

Problem Identification and ManagementProblem Identification and Management
 Rather tell the company than switch to aRather tell the company than switch to a
competitor or tell someone else. Actingcompetitor or tell someone else. Acting
rather than reacting.rather than reacting.
 Build numerous mechanism for identifyingBuild numerous mechanism for identifying
customer problems.customer problems.
– Customer satisfaction surveyCustomer satisfaction survey
– Mysterious shoppersMysterious shoppers
– Websites, other contacts pointsWebsites, other contacts points

Conflicts and Customer ComplaintsConflicts and Customer Complaints
 Level of dissatisfactionLevel of dissatisfaction
 Attrition of blameAttrition of blame
 Cost/benefits of actionsCost/benefits of actions
 Personal characteristics:Personal characteristics:
– highly educated,highly educated,
– self-confident,self-confident,
– aggressive,aggressive,
– Older women.Older women.

Dealing with complaintsDealing with complaints
Having the skill to interact with different types ofHaving the skill to interact with different types of
people. Trained in methods of interaction and inpeople. Trained in methods of interaction and in
different style of communication.different style of communication.
 Be customer-centric. Let the customers know thatBe customer-centric. Let the customers know that
they have been understood.they have been understood.
 Express regretExpress regret
 Resolve conflictResolve conflict
– Accommodation, Compromise, TerminationAccommodation, Compromise, Termination
 Follow-up and prevent recurrenceFollow-up and prevent recurrence
 Keep in touch and listen to customerKeep in touch and listen to customer

Resolve conflictResolve conflict
A disagreement in which the views of theA disagreement in which the views of the
customer and the organization appear tocustomer and the organization appear to
be incompatible.be incompatible.
 Accommodation: a settlement thatAccommodation: a settlement that
emphasizes cooperative behavior.emphasizes cooperative behavior.
 Compromise: mutually acceptable middleCompromise: mutually acceptable middle
ground that is somewhat satisfactory toground that is somewhat satisfactory to
both parties.both parties.
 TerminationTermination

Customer Loyalty and Retention strategies

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