Customer Retention Strategy

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  • 1.By- Avinash Kumar [email_address] Retention strategy

2. Why Focus on Customer Retention (CR)?

  • Service encounter failures
  • Inconvenience
  • Response to failed service
  • Pricing
  • Competition
  • Ethical concerns
  • Involuntary switching
  • Other factors
  • (Keveaney, S.M., 1995)

3. Reicheld on Customer Retention

  • Service companiesmust retain the best personnel to win and keep good customers
  • Its impossibleto build a loyal bank of customers without a loyal employee base
  • On average , U.S. corporations lose half of their customers in 5 years
  • A typical companyhas a customer defection rate of 10-30% per year
  • Raising the customer retentionrate by 5% can increase the value of an average customer(lifetime profits) by 25-100%

4. Philips Kotler on Customer Retention

  • The key to customer retention is
  • customer satisfaction
  • Satisfied Customers
  • Stay loyal longer
  • Talk favorably about the organization
  • Pay less attention to the competition
  • Are less price sensitive
  • Offer service ideas to the organization
  • Cost less to serve than new customers

5. The Cost ofLost Businessfor a Hospital

  • 15,000 patients annually
  • 3,750 defections
  • (25% defection rate, 75% retention rate)
  • $2,500 average patient revenue
  • $9.375 million = annual lost revenues
  • $703,125 = lost profits (7.5% profit margin)

6.

  • Image/Promotion- community service, direct mail, educationalofferings, integrated marketing communications, newsletters, regular customer contact, informational materials, website
  • Service Quality- continuous quality initiatives, convenience,customer service training, demonstrate that customers are highly valued, mystery shopping, customer representatives/ ombudsman,service failure training, smile, treat customers as family.
  • cont..

Customer Retention Tactics 7.

  • Research- analyze defection rates/reasons, classify customers by usage/satisfaction/loyalty, develop targeted retention programs.
  • Internal Marketing- loyalty task force, prepare solutions to recurring problems, share appropriate customer data with staff,reward and publicize customer care person of the month.
  • *Customer-Centered - dialogue marketing, customer bill ofrights, customer care councils, understand customer expectations.

Customer Retention Tactics-cont. 8. ACustomerValue/RetentionModel

  • The CV/retention model offers a good way of explaining the key relationships among the core elements that create value in an organization
  • Customer value is built through the proper mix ofSQIP(service, quality, image & price) - elements that attract and keep customers

9. The Customer Value/Retention Model Customer Attraction Customer Retention Shareholder Value Customer Value Customer Satisfaction LoyaltyBusiness Performance Weinstein/Johnson, 2003. 10. Applications of the Customer Value Retention Model (CV/RM)

  • The keyvariables and their relationships to one another are clarified. This provides strategic guidance to management.
  • Second , it stresses long term relationships (retention) but still realizes that some customer defection and attrition will occur so customer attraction must remain a priority.
  • Third , the model is interfunctional and systematic -- it ties marketing objectives to the big picture, the financial situation.
  • Feedback loopsare also depicted in the Customer Value/Retention Model.

11. Customer Satisfaction, Loyalty and Retention Model Highly Satisfied Satisfied Dissatisfied Highly Loyal Loyal Disloyal Retain Defect 12. A Customer Loyalty Framework Multiple loyalty Situational loyalty Limited loyalty No Loyalty Some LoyaltyComplete Loyalty 13. According to CRM experts Jay Curry and Adam Curry:

  • Top 20% of the customer deliver 80% of the revenue.
  • Existing customers contributes upto 90% of the revenue
  • Top 20%of the customers delivers more than 100% profits.
  • The bulk of Marketing benefit is often spent on people other than customers.

14. According to CRM experts Jay Curry and Adam Curry:

  • Between 5% and 30% of all customer have the potential for moving upward the loyalty ladder.
  • 2% upward migration in the loyalty ladder means 10% more revenue and 50% more profits.

15. Sequences in Retention process

  • Exploring
  • Evaluating
  • Establishing Strategies
  • Examining feedback

16. Attrition: The Negative Signal to Retention

  • Increase in the number of complaint
  • Decrease in the frequency of contacts
  • Decrease in personal visits
  • Decrease in enquiries
  • Decrease in the volume of business
  • Decrease in the number of active buyers
  • Decrease in the extent of interaction
  • Decrease in the flow of communication.

17. Brand Switching Behavior

  • Dissatisfaction with present brand
  • Change in fashion
  • Promises made by competitors
  • Change in the perceived benefits
  • Personal characteristics of the customer concerned
  • Pressure of salespersons
  • Personal reasons

18. B uyer orT ry-er?

  • Realize that a 1-timebuyer is really atry-er , rather than a customer
  • To move beyond the transaction stage, organizational experiences mustmeet or exceed expectations
  • Repeated incidents of high satisfaction are sought through the utilization of relationship marketing strategies, leading to greater customer loyalty

19. Classification ofCustomer Loyal Segments

  • Strangers short-term-low profit customers
  • Butterflieshigh-profit potential but tend to be short-term and disloyal
  • Barnacles stay around for the long-term but generate relatively low profits
  • True friendsare both highly profitable and are long-term customers
  • (Reinartz, W. and Kumar, V., 2002)

20. Butterflies: Good fit High profit potential Transaction satisfaction Milk active accounts Cease investingStrangers: Little fit Lowest profit potential Make no investment Max transaction profitTrue Friends: Good fit Best profit potential Consistent communication Attitudinal & behavioral loyalty Delight customersBarnacles: Limited fit Low profit potential Measure size and share of wallet Low share, up- and cross-sell Small wallet, strict cost controlTransaction Relationship High profit Low profit Classification ofCustomer Loyal Segments 21. Loyalty Building Strategies

  • Send salespeople to work at the offices of
  • yourbest customers
  • Participate in customers events
  • Hold a retreat with a major customer to share
  • best practices
  • Invite customers to participate in training
  • seminars
          • CONT..

22. Loyalty Building Strategies-CONT.

  • Set up a customer advisory council
  • Develop a preferred-customer pricing strategy
  • Reward customers for referring new business
  • Develop 3-5 year business plans with
  • customers
  • Partner with key accounts on industry
  • research projects

23. Usage Analysis and CR

  • Differentiated marketing strategies foruser groups: 1st-time users, repeat customers, heavy users, and former users
  • By classifying customer accounts based on usage frequency and variety, companies can develop effective strategies to retain and upgrade customers

24. Usage Analysis Tools

  • Heavy, medium, light, former, and nonusers ( A,B,C,D,X )
  • Heavy half segmentation ( 80/20 rule )
  • Users vs. nonusers, competitive users
  • Loyal (degree) versus nonloyal customers
  • Product/service applications by user group
  • Adopter categories - innovators, followers, laggards
  • Geographic comparisons (customer penetration indices, growth)

25. 4-Tier Usage Segmentation

  • Platinum Tier the companys most profitable customers
  • Gold Tier seek price discounts, less loyal, and use multiple vendors
  • Iron Tier essential customers who provide the volume to utilize the firms capacity, but their spending levels, loyalty, and profitability do not meritspecial treatment
  • Lead Tier customers who cost the company money. They demand more attention than they are due given their spending and profitability - sometimes problem customers that complain and tie up resources.
  • (Rust, Zeithaml, and Lemon, 2000/2003)

26. RFM Analysis

  • Recencyrefer