Everybody in this world is a consumer. Variety of goods and services is needed right from birth to death. Consumer needs are foundation for the economic operation of any country. It is a proven fact that business makes profit only when goods are consumed or services utilized. This presupposes consumer’s existence. Business is entirely dependent upon the consumers not only for its survival but also for its growth. For the last two decades there has been a tremendous and rapid development in product innovation, product line, pricing and promotional strategies by the businessmen, and so the preferences, tastes, culture, etc. of the consumers have manifested the business environment and led to transformation from sellers’ market to buyers’ market. Hence, today, the consumer has become a king, and his buying behaviour has acquired the focal point of attention of the business world, marketing agencies, researchers and academicians as well.
In the highly competitive environment, the focus of the organizations is more on customer retention than simply on customer acquisition. Customer retention is the process of keeping customers in the customer inventory for an unending period by meeting the needs and exceeding the expectations of those customers. It is the approach of converting a casual customer into a committed loyal customer. Customers come within the fold of an organization in the following ways:
- Customer by chance
- Customer by occasion
- Customer by choice
- Customer by repetition
- Customer by loyalty
In the customer retention approach the organization makes every effort to convert a customer by chance into a customer by loyalty. A retained customer who turns out to be loyal will shift his focus of relationship with the organization from a mere transactional relationship to a relationship tied up with emotion and commitment, which will benefit the organization in the long run. Those customers by retention may prove to offer a benefit to the organization as:
- An asset
- An ambassador
- An experience shaper
- A winning edge
- A knowledge provider
- A spokesperson
- A caretaker
- A resource provider
- A partner
Customer retention would enable the organization to minimize expenses in terms of acquisition of new customers. Customer retention cost for an organization is expected to be far less than that of the acquisition cost. It also enables a long-term relationship of mutual benefit, both to the organization and to the customer concerned. There appears to be close interaction between customer retention and customer loyalty. Loyalty is usually measured in terms of longevity of the patronage of customers. Loyalty that arises out of retention is a preferred state, as compared to loyalty of reluctant customers. A reluctant customer may also appear to be a loyal customer, which is a type of spurious loyalty or artificial loyalty forced by various factors such as situational, limited brand choice, limited income and limited supply. Customers who are not retained may even opt for shared loyalty which is risky because the chances of brand switching are likely to take place more frequently. As such these loyalty statuses are not dependable, as these would be eroded quickly. Moreover, part of these customers would be engaging themselves in the attrition process at the same time being engaged in the loyalty process. On this line, loyalty based on retention is a more welcome step. Customer retention would further enable customers to spend more and more on organization offerings. Customers’ share of business will increase. Accordingly, cost of serving retained customers would be less compared to serving fresh customers every time. Retained customers would help to spread positive image of the organization by word of mouth, which in turn helps acquire new customers to the customer inventory. Further it is likely that retained customers may be less price sensitive. Considering these aspects, there appears to be more profit potential for the organization by way of customer retention.
It was claimed by Reichheld and Sasser (1990) that a 5% improvement in customer retention can cause an increase in profitability of between 25 and 85 percent (in terms of net present value) depending on the industry. They also indicated that engaged customers generate 1.7 times more revenue than normal customers. The relevance and importance of customer retention practices has thus become a very important modern marketing concept.
Berry and Parasuraman (1991) developed a framework for understanding types of retention strategies that have been widely accepted as the standard model for considering issues of customer retention. They suggest that retention marketing can occur at three different levels. Each successive level of retention results in increasingly greater customization or individual service in addition to the potential for sustained competitive advantage and ties that bind the customer closer to the firm. At level one, the customer is tied to the firm primarily through financial incentives such as lower prices for greater volume purchases and reduced prices for customers who have been with the firm for a long period of time. However, since financial incentives tend to be easily copied by competitors, they do not generally provide long-term advantages to a firm unless combined with another relationship strategy. Level two combines these financial incentives with social bonds to promote long-term relationships. Services are customised to meet individual needs, and there is continuing contact between the firm and the customer. Level three bonds are more difficult to imitate and involve structural as well as financial and social bonds. According to Czepiel (1990), a relational exchange is a social process that develops over time with the accumulation of service encounters. How many points of service contact exist between the member and the club on a regular visit to the centre? Could increasing the points of contact help strengthen the relationship? Czepiel maintains that the process involves building of ‘psychological loyalty’ as a result of a combined economic and social bonding. This bonding involves the development of relational norms such as commitment, trust, mutual support, open communication, adaptability, shared responsibility for conflict resolution, cooperation and solidarity among participants (Macneil, 1978; Czepiel, 1990; Wilson, 1995; Nevin, 1995). Examination of company culture and methods used to obtain and keep new members, development of customer service programmes, staff training and education, identification of members who are at risk of discontinuing their relationship with the organization, membership tracking, initiation of reactivation programmes for lapsed members, awareness of the financial value of members and completion of exit analysis could further lead to the development of financial, social and structural relationships and ultimately customer retention in the organization.
Strategy for Customer Retention
Though business implements some strategy to get the benefit out of the repeated customers, we need to understand the various strategies which they implement. Let us discuss some of the important ones below
- Proper Email Communication/Marketing: Avoid sending the emails to the huge list of customers with a high frequency. When the customer gets many mails which are not of their interest, then this leads to disengagement of customers rather than retention. Try to differentiate the customers with proper demographics and purchase information, and send the right mails with personalized information to the right customers.
- Understand the value of lifetime: You should know how much business and profit you are going to gain with a customer over the lifetime. Once the analysis for a customer is done, it is easy to understand the importance of the customer retention in the business. Share of wallet combined with lifetime value helps us to understand which customer has more potential for growth which allows to focus on the customers that is critical to the business
- Analyze and sell: Retailers perform the research to find the frequency of customer visit and purchase of goods. They focus on converting the site into the sale. You should know which products sell well together and which ones are obvious after sale. You should also know how long it takes the customers to purchase again so you can strike when the customer is thinking of another purchase.
Approach to Retention Process:
The approach of retention process is expected to be different from the approach adopted at the acquisition process. The difference is indicated as follows:
- At the acquisition, the focus is on acquiring relationships whereas at the retention, it is on nurturing the relationship.
- At the acquisition, the focus is on demographic and psychographic profile of the customers, whereas at the retention process, the focus is more on past and present transactional profiles in addition to demographic, psychographic profiles, etc.
- While at the acquisition process, the customer is mainly driven by offer and incentives; at the retention process, he is driven by the type and extent of relationship maintained by the organization for furthering the relationship.
Benefits of Customer Retention
The benefits are innumerous but some of them are discussed below
- Customer Acquisition cost is negligible: It is known that hiring new customers require time. It is needed to Etch out a strategy then create an acquisition plan, implement it, and wait for the data to flow in, so that analysis is done for what is working and what is not. Meanwhile, it is also essential to keep an eye on the number of customers that come as an effect of new strategy. This will give us a lot of free time to create value by doing what we know best, and from what customers come to us. The cost of getting new customer is 5-12 times greater than the cost of retaining the old customer
- Customer Feedback and Solicit Complaints Regularly: There are a lot issues faced by the customers when they make a purchase of goods/services. But they feel hurt when there is nobody to help or resolve their issues like customer care representative did not answer your query, queue is long and unmanageable, no helper to describe the product. It takes less time to hear the customer’s problem and resolve. When you do so immediately, customers feel they are being heard and valued. This may lead to forget the bad feedback he had and make him happier.
- Give Surprises To Customers: Loyalty programs will keep on adding the points when they make any purchase. There are several retailers who gift their customers when a threshold spent amount is reached. Consider that you are booking your flights with yatra.com by being registered user. Once you have reached to a reward point of 500, you will get the additional discount. This would be a surprise for the customers as they were unaware of this.
For citing this article, use:
- Muthukumar, S. (2017). Brand equity and customer retention_A study with reference to branded readymade Garments.