Customer Retention UNIT I

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    Customer Retention

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    DEFINITION:

    y Customer Retention is the activity that a selling

    organization undertakes in order to reduce customer

    defections.

    y S

    uccessful customer retention starts with the first contact anorganization has with a customer and continues throughout

    the entire lifetime of a relationship

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    y Customer retention is more than giving the customer what

    they expect, its about exceeding their expectations so that

    they become loyal advocates for thebrand.

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    Why Customer Retention?

    Customer retention and satisfaction drive profits. It's farless expensive to cultivate the existing customer base and sell

    more services to them than it is to seek new, single-

    transaction customers.

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    Why is Retention important?

    y LONGTERM LOYALCUSTOMERS:

    y Buy more per year

    y Buy more often

    y Are less price sensitivey Are less costly to serve

    y Are more loyal

    y Have a higher lifetime value

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    Likely disloyal customers

    y Transient individuals

    y Young people rather than older people

    y Single people rather than married people

    y Renters rather than home ownersy People who respond to low-bill discount offers

    y People who respond to temporary sales

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    Basic Retention Strategy

    y Put yourself in customer shoes

    y The customer retention process begins with the first contactbefore they are even a customer.

    y Cross sales build retention

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    BENEFITS OF CUSTOMER RETENTION

    y Revenues are enhanced due to increased sales and costs are

    lowered due to lesser generation and marketing costs of such

    revenues.

    y S

    avings on customer acquisition or replacement costsy A guarantee of base profits as existing customers are likely to

    have a minimum spend per period

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    y Growth in per customer revenue over time

    y A reduction in relative operating costs as firms can spread the

    cost over many more customers and over a longer period of

    time.y Free of charge referrals of new customers from existing

    customers

    y Price premiums as current customers usually do not wait for

    promotions or price reductions before they make theirpurchases

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    NON-ECONOMIC BENEFITS

    y Increased customer trust

    y Commitment

    y Cooperation

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    6 types of defectors

    y Price defectors: switch to low priced competitor

    y Product defectors :superior product offered by a competitor

    y Service defectors:who leave due to poor service

    y Technological defectors : switch to products offered bycompanies outside the industry

    y Organisatoinal defectors: internal or external politics

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    Strategies for retaining customers

    y Define the market structure

    y Segment the customer base and determine the segment value

    y Identify the segment needs and

    y Implement a segmented service strategy

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    Strategies for customer retention

    y Strategic bundling is another way of erecting a barrier against

    defections that can lead to enhanced customer retention.A

    bundle is a group of products or services offered as a single

    cost saving and convenient package.A customer who opts for

    a bundle will not switch to a competitor even if he is offered

    a better deal on a single item of the bund

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    Strategies for customer retentiony Usage analysis is a method that can be effectively used to help in

    customer retention.

    y Segmenting markets by consumption can provide valuable insightsinto the mix of customers.

    y

    Heavy users are more valuable than the medium or light ones andappropriate marketing strategies have to be devised to retainthem.

    y Similarly in the business context, we find the Pareto Principle orthe 80/20 rule in operation.

    y Key accounts that comprise about 20 per cent of the businesscustomers are responsible for about 80 per cent of the salesgenerated. Such heavy and key users are prone to poaching bycompetitors.

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    Strategies for customer retention

    y Hence it is important to concentrate advertising, promotion,

    sales and communication efforts on this segment. Medium

    customers should be targeted with revenue enhancement

    strategies through phone calls and e-mails.

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    Strategies for customer retention

    y Visibility:Customer should know where to complain

    y Accessibility: Customer should know how to complain.

    y Responsiveness:Complaints need to be dealt quickly. The

    quicker the complaints are dealt with, the higher thecustomer satisfaction

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    Strategies for customer retention

    y Customer focussed apporoach:A service provider who

    adopts customer-focussed approach, invites complaints and

    indicates commitment for resolving complaints by its words

    and actions in all fairness.

    y Accountability :Some in the organisation has to take

    responsibility for complaint handling.

    y Continous improvement:Looking at the root causes and

    fixing them.

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    Strategies for customer retention

    y Membership cards and programs that entitle your customers

    to special offers, discounts, or preferential treatment.

    y Welcome, acknowledgement, sales recognition, thank you

    statementsy After sales satisfaction and complaint inquiries and surveys.

    y Event oriented communications in which the customer is

    genuinely interested.

    y Enhanced and empowered customer, after sales, andtechnical support.

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    Survey questionnaire s for customer

    retention or lost customer program

    y Our records indicate that you were the primary

    user of Company ABCs products/services, and that

    you have terminated your usage/contract with

    Company ABC. Is this correct?

    y Yes

    y No

    y Don't Know

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    Survey questionnaire s for customer

    retention or lost customer program

    y What is the primary reason for canceling your

    usage/contract with Company ABC?

    y Price

    y

    Product featuresy Customer Service

    y Moved

    y Other

    y Dont Know

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    y What is it about (price, features, etc, from list

    above) that makes it the primary reason for

    canceling the account?

    y L

    ist options or record open-ended comments

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    Survey questionnaire s for customer

    retention or lost customer program

    y Did you purchase (Company ABCs

    products/services) from another company?

    y Yes

    y No

    y Don't Know

    y (If yes in purchase another company question above)

    From which company did you purchase (CompanyABCs products/services)? List options or record open-

    ended comments

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    Survey questionnaire s for customer

    retention or lost customer program

    y How did you hear about (new company mentioned

    in previous question)? Advertisement

    y Sales representative

    y Colleague/friend

    y Other

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    Survey questionnaire s for customer

    retention or lost customer program

    y Is there anything specifically that Company ABC

    could have done differently to keep your business?

    y List options or record open-ended comments

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    y The customer retention rate refers to the number of

    customers lost over a period of time.

    y

    It is normally calculated by the percentage of lost customersversus existing customers over a quarterly or annual period,

    without tallying new customer acquisitions.

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    y Retention Rate (r) is calculated by following one group of people and seeing how many are left at the end of agiven time. Most companies use 1 year periods of time, therefore the easiest equation is r= 1-Attrition Rate, orr=1-(number of customers that left/number of original customers)

    y Notice this doesn't take into account new clients you bring in over the year. It can't. That number is yourAcquisition Rate. If you were to calculate in your new clients, it would skew your data.

    y Retention Rate, by definition, means the rate at which you are keeping a customer. If you had 100 customers andat the end of a year only 82 were left, you'd have an 82% Retention Rate OR and 82% chance of keeping a newcustomer 1 year.

    y So, in following our 9 year customer tenure from above, let's say we started with 100 customers 9 years ago, someleft during that first year, leaving 82 at the beginning of the second year....etc.

    y (r) is calculated by isolating a group of customers for a given time period (t) (in this case 9 years) and taking thenumber of clients that left by the end of that time period, and dividing by the sum total number of clients at theend of each year for those 9 years.Here's the equation: r(t)=1-[number of customers thatleft/sum(n=0...t)number of customers(n)]

    y So, we first calculate how many clients we've lost in total from our group during this time. Justtake the total number of active clients at the beginning, and subtract the active ones at the end of9 years.

    y 100-34=66 customers that left.

    y Then we add up how many total clients we had each year.

    y 100+82+76+70+66+60+56+47+40+34=631 total clients during the 9 year period.

    y To calculate the Retention Rate, we just take 1-(66631) = 1-.10459 = .895 (or 89.5%)

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    y she will chuck out your newsletters unread

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