- 1.By- Avinash Kumar [email_address] Retention strategy
2. Why Focus on Customer Retention (CR)?
- Service encounter failures
- Response to failed service
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
- Talk favorably about the organization
- Pay less attention to the competition
- Offer service ideas to the organization
- Cost less to serve than new customers
5. The Cost ofLost Businessfor a Hospital
- (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)
- 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.
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
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 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
- Promises made by competitors
- Change in the perceived benefits
- Personal characteristics of the customer concerned
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
- Participate in customers events
- Hold a retreat with a major customer to share
- Invite customers to participate in training
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
- Partner with key accounts on industry
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