Chapter 15 Customer Retention COPYRIGHT 2002 Thomson

Chapter 15 Customer Retention COPYRIGHT © 2002 Thomson Learning, Inc. Thomson Learning is a trademark used herein under license. ALL RIGHTS RESERVED.

CUSTOMER RETENTION Ø More futuristic than customer satisfaction Ø Focuses marketing efforts to current customers Ø The opposite of conquest marketing COPYRIGHT © 2002 Thomson Learning, Inc. Thomson Learning is a trademark used herein under license. ALL RIGHTS RESERVED.

THE INCREASING IMPORTANCE OF CUSTOMER RETENTION Ø Markets are stagnant Ø decrease in population growth Ø GNP growth increasing at a decreasing rate Ø Increase in competition Ø relative parity Ø Rising costs of marketing Ø increase in the cost of advertising Ø loss of “share of voice” COPYRIGHT © 2002 Thomson Learning, Inc. Thomson Learning is a trademark used herein under license. ALL RIGHTS RESERVED.

THE INCREASING IMPORTANCE OF CUSTOMER RETENTION Ø Changes within the channels of distribution Ø distance marketing Ø Customers have changed Ø more informed Ø increasingly skeptical COPYRIGHT © 2002 Thomson Learning, Inc. Thomson Learning is a trademark used herein under license. ALL RIGHTS RESERVED.

THE BENEFITS OF CUSTOMER RETENTION Ø Profits derived from sales Ø Reducing defections by 5% can boost profits 25% to 85% Ø Profits from reduced operation costs Ø It is 3 to 5 times cheaper to keep a customer than to recruit a new one Ø Profits from referrals COPYRIGHT © 2002 Thomson Learning, Inc. Thomson Learning is a trademark used herein under license. ALL RIGHTS RESERVED.

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. COPYRIGHT © 2002 Thomson Learning, Inc. Thomson Learning is a trademark used herein under license. ALL RIGHTS RESERVED.

CUSTOMER RETENTION TACTICS Ø Maintain the proper perspective Ø Build trusting relationships Ø Protect confidential information Ø Tell customers the truth Ø Provide full information (pros and cons) Ø Be dependable, courteous, and considerate Ø Be actively involved in community affairs COPYRIGHT © 2002 Thomson Learning, Inc. Thomson Learning is a trademark used herein under license. ALL RIGHTS RESERVED.

CUSTOMER RETENTION TACTICS Ø Monitor the service delivery process Ø Properly install products and train customers Ø Be there when you are needed the most Ø Provide discretionary effort COPYRIGHT © 2002 Thomson Learning, Inc. Thomson Learning is a trademark used herein under license. ALL RIGHTS RESERVED.

IS IT ALWAYS WORTHWHILE TO KEEP A CUSTOMER? Ø The account is no longer profitable Ø Contract conditions are no longer being met Ø Customers demands are beyond reasonable Ø Customer is abusive to the point that it lowers employee morale Ø Customer’s reputation is so poor that it tarnishes the reputation of the selling firm COPYRIGHT © 2002 Thomson Learning, Inc. Thomson Learning is a trademark used herein under license. ALL RIGHTS RESERVED.

EMERGING CUSTOMER RETENTION PROGRAMS Ø Frequency Marketing Ø Primary goal is to encourage existing customers to purchase more often from the same provider COPYRIGHT © 2002 Thomson Learning, Inc. Thomson Learning is a trademark used herein under license. ALL RIGHTS RESERVED.

COMMENTS ABOUT FREQUENCY MARKETING Ø The Leaky Bucket Theory Ø Replaces lost customers with new customers Ø Ø Ø Polygamous Loyalty Ø Customer loyalty is generally divided among a number of fixed brands Ø Ø 10% of customers tend to be loyal 100% of loyal customers are light purchasers Frequent flyer cards… 3. 1/traveler Double Jeopardy Ø Small brands have fewer buyers who buy less frequently. COPYRIGHT © 2002 Thomson Learning, Inc. Thomson Learning is a trademark used herein under license. ALL RIGHTS RESERVED.

EMERGING CUSTOMER RETENTION PROGRAMS Ø Relationship Marketing Ø Marketing technique based on developing long-term relationships with customers Ø Aftermarketing Ø Emphasizes the importance of marketing efforts after the initial sale has been made COPYRIGHT © 2002 Thomson Learning, Inc. Thomson Learning is a trademark used herein under license. ALL RIGHTS RESERVED.

TYPES OF SERVICE GUARANTEES Ø Implicit Guarantees Ø An unwritten, unspoken guarantee that establishes an understanding between the firm and its customer Ø Specific Result Guarantees Ø Guarantees that apply only to specific steps or outputs in the service delivery process Ø Unconditional Guarantee Ø A guarantee that promises complete customer satisfaction COPYRIGHT © 2002 Thomson Learning, Inc. Thomson Learning is a trademark used herein under license. ALL RIGHTS RESERVED.

THE BENEFITS OF GUARANTEES Ø Customer-directed Benefits: Ø customers perceive a better value Ø perceived risk is lower Ø the firm is perceived as more reliable Ø helps consumers decide among alternatives Ø helps consumers overcome resistance Ø helps to overcome negative word-of-mouth COPYRIGHT © 2002 Thomson Learning, Inc. Thomson Learning is a trademark used herein under license. ALL RIGHTS RESERVED.

THE BENEFITS OF GUARANTEES Ø Organization-directed Benefits: Ø forces the firm to focus on the customer’s definition of good service Ø the guarantee states a goal that is communicated to employees and customers Ø invoked guarantees provides a measurable means of performance COPYRIGHT © 2002 Thomson Learning, Inc. Thomson Learning is a trademark used herein under license. ALL RIGHTS RESERVED.

THE BENEFITS OF GUARANTEES Ø Organization-directed Benefits (cont’d): Ø forces the firm to examine its entire service delivery system for failure points Ø serves a source of pride and motivation for team building COPYRIGHT © 2002 Thomson Learning, Inc. Thomson Learning is a trademark used herein under license. ALL RIGHTS RESERVED.

RISKS ASSOCIATED WITH GUARANTEES Ø May be viewed as a “Tacky” marketing ploy Ø Is guaranteed due to failures in the past? Ø Customers may be too embarrassed to invoke guarantee Ø Guarantee may encourage customers not to complain Ø Documentation and time for actual refund to be completed COPYRIGHT © 2002 Thomson Learning, Inc. Thomson Learning is a trademark used herein under license. ALL RIGHTS RESERVED.

SUGGESTED CONDITIONS FOR OFFERING SERVICE GUARANTEES Ø Prices are high Ø The costs of a negative outcome are high Ø The service is customized Ø Brand recognition is difficult to achieve Ø Buyer resistance is high COPYRIGHT © 2002 Thomson Learning, Inc. Thomson Learning is a trademark used herein under license. ALL RIGHTS RESERVED.

CUSTOMER DEFECTIONS Ø Businesses commonly lose 15% to 20% of their customers each year Ø Types of defectors Ø price defectors Ø product defectors Ø service defectors Ø market defectors Ø technological defectors Ø organizational defectors COPYRIGHT © 2002 Thomson Learning, Inc. Thomson Learning is a trademark used herein under license. ALL RIGHTS RESERVED.

SATISFACTION & DEFECTIONS Ø Satisfaction does not necessarily translate into customer retention Ø high satisfaction/low loyalty Ø commodity Ø consumer Ø many Ø low products (no differentiation) indifference (low involvement) substitutes cost of switching COPYRIGHT © 2002 Thomson Learning, Inc. Thomson Learning is a trademark used herein under license. ALL RIGHTS RESERVED.

SATISFACTION & DEFECTIONS Ø Satisfaction does not necessarily translate into customer retention Ø low satisfaction/high retention Ø regulated monopoly (or few substitutes) Ø dominant brand equity Ø high cost of switching Ø proprietary technology COPYRIGHT © 2002 Thomson Learning, Inc. Thomson Learning is a trademark used herein under license. ALL RIGHTS RESERVED.