Customer Retention Strategies

In this scenario of competitive world, every organization is in direct competition with the others in the market. The cause of this competition is the vivid nature of the customers and their desires. So in order to create the true and valued customers we must know the life cycle of customer so that they can be along with organization and its walk. The customer lifecycle is made up of three core processes: - Customer Acquisition, Customer Retention and Customer Development. The processes of customer retention and development are the focus of every competitive managing organization. Focus is necessary because not all customers are worth retaining and not all customers have potential for development. So for retaining the valued customer each organization are adopting techniques and developing some strategies. In this paper, some of the strategies regarding customers changing need, customers emotional and financial matchmaking and superlative degree of old customers compare to new ones ,will be discussed and put into context.

INTRODUCTION

 
In today's challenging economy and competitive business world, retaining your customer base is critical to your success. If you don't give your customers some good reasons to stay, your competitors will give them a reason to leave. Customer retention and satisfaction drive profits. It's far less expensive to cultivate your existing customer base and sell more services to them than it is to seek new, single-transaction customers. Most surveys across industries show that keeping one existing customer is five to seven times more profitable than attracting one new one.
The question arises whether only fulfilling customer’s basic needs and expectations is enough in order to provide consumer value, or are retailers and suppliers required to do more to deliver true value. But before we discuss about the major topic first we must think and define who is customer
According to Mahatma Gandhi
“A customer is the most important visitor on our premises; he is not dependent on us. We are dependent on him. He is not an interruption in our work. He is the purpose of it. He is not an outsider in our business. He is part of it. We are not doing him a favor by serving him. He is doing us a favor by giving us an opportunity to do so.”

 
 
Customers are broadly classified as: Internal customer and External customer. Internal customers are the employees of the company and External customers are those who purchase goods, services from the company. Thus customer retention can be viewed as retention of both Internal and External customers. So in order to retain our customer we first come to know about the life cycle of customer.The customer lifecycle is made up of three core customer management processes: Customer Acquisition, Customer Retention and Customer Development.
Customer acquisition is focused on particular prospects; it means to acquire more and more new customers whereas retention and development also focus on particular customers but in the narrow sense. Focus is necessary because not all customers are worth retaining and not all customers have potential for development. Many customer retention strategies and customer development strategies should be developed after acquiring the customer to keep the customer for long walk.
A customer retention strategy aims to keep a high proportion of valuable customers by reducing customer defections (churn), and a customer development strategy aims to increase the value of those retained customers to the company.
The customer can only be retained if we understand customer values, customer behavior, customer need, customer perspectives, customer security and above all customer satisfaction.


      What is customer value?
Term consumer/customer value appears often in the theory of customer satisfaction and category
management. Besides keeping customers satisfied, delivering superior value to them is one essential key point for companies in order to succeed in today’s highly competitive markets.
The definitions of customer value are slightly different from each other but they have two very significant similarities. Firstly, customer value is always associated with trade done by customer. In other words, what customers are willing to pay and what they receive in return for the costs (money, time, effort etc) invested. Secondly, customer value is often defined as ability to fulfill needs, and therefore it’s very close to customer satisfaction.

Ten lessons from Konosuke Matsushita, founder of Panasonic for creating customer value are:
•    The mission of the company is to enrich society.
•    Company’s vision must be driven by the aspiration of its customers.
•    In the long run , the public opinion is right.
•    Don’t sell customers goods that they are attracted to; sell them goods that will benefit them.
•    Treat your products like your children.
•    Any waste will increase the price of the product.
•    Stick to fail prices.
•    After sales service is more important than assistance before sales; it is through such service that one gets permanent customers.
•    Use complaints to strengthen ties with your customer
•    To be out of stock is due to carelessness; if this happens, apologize to your customers, and deliver the goods as soon as you can.



 
Customer behavior
Customer behavior analysis is based on consumer buying behavior, with the customer playing the three distinct roles of user, payer and buyer. Relationship marketing is an influential asset for customer behavior analysis as it has a keen interest in the re-discovery of the true meaning of marketing through the re-affirmation of the importance of the customer or buyer. A greater importance is also placed on consumer retention, customer relationship management, personalization, customization and one-to-one marketing.  The concern of the majority of works is no longer on the individual buyer but is now rather on collective or organizational buying behavior. This helps in determining which  customers are worth developing and managing by putting unique strategies in place in order to attract a certain type of visitor. And so through customer behavioral analysis accurate customer profiles can be generated by specifying needs and interests and allowing businesses to give customers what they want when they want it; leading to better customer satisfaction and hence keeping them coming back for more.
Customer need
Customers are humans, so the need of humans can be defined by Maslow's hierarchy of needs. This hierarchy suggests that people are motivated to fulfill basic needs before moving on to other needs. This is show by diagram below
 
  


 
The Six Basic Needs of Customers
1. Friendliness
Friendliness is the most basic of all customers needs, usually associated with being greeted graciously and with warmth. We all want to be acknowledged and welcomed by someone who sincerely is glad to see us. A customer shouldn’t feel they are an intrusion on the service provider’s work day!
2. Understanding and empathy
Customers need to feel that the service person understands and appreciates their circumstances and feelings without criticism or judgment. Customers have simple expectations that we who serve them can put ourselves in their shoes, understanding what it is they came to us for in the first place.
3. Fairness
We all need to feel we are being treated fairly. Customers get very annoyed and defensive when they feel they are subject to any class distinctions. No one wants to be treated as if they fall into a certain category, left wondering if “the grass is greener on the other side” and if they only received second best.
4. Control
Control represents the customers’ need to feel they have an impact on the way things turn out. Our ability to meet this need for them comes from our own willingness to say “yes” much more than we say “no.” Customers don’t care about policies and rules; they want to deal with us in all our reasonableness.

5. Options and alternatives
Customers need to feel that other avenues are available to getting what they want accomplished. They realize that they may be charting virgin territory, and they depend on us to be “in the know” and provide them with the “inside scoop.” They get pretty upset when they feel they have spun their wheels getting something done, and we knew all along a better way, but never made the suggestion.

6. Information
“Tell me, show me – everything!” Customers need to be educated and informed about our products and services, and they don’t want us leaving anything out! They don’t want to waste precious time doing homework on their own – they look to us to be their walking, talking, information central.
Thus all customer need, customer perspectives, customer security and customer satisfaction can be fulfilled if we value our customers and know their nature and behavior. If we prove in satisfying our customers we can retain them as our valued customers.

 
      Customer retention

For throwing light on customer retention following points is to be considered:
      What is customer retention?
Customer retention is the maintenance of continuous trading relationships with customers over the long term. Customer retention is the mirror image of customer defection or churn. High retention is equivalent to low defection. Customer retention is the number of customers doing business with a firm at the end of a financial year, expressed as percentage of those who were active customers at the beginning of the year.
    

      Measures of customer retention
•    The 20/80 Rule Applied to Customers by Tom Murcko
For many companies, 20% of the customers generate 80% of the profits. Those companies would often be better off by focusing more on that 20%, and by searching for other customers similar to that 20%, and focusing less on the other 80% of their current customers.

•    Customer retention rate: -- The customer retention rate refers to the number of customers lost over a period of time. It is normally calculated by the percentage of lost customers versus existing customers over a quarterly or annual period, without tallying new customer acquisitions.
 
 
•    Raw customer retention rate: this is the number of customers doing business with a firm at the end of a trading period, expressed as percentage of those who were active customers at the beginning of the period.
•    Sales-adjusted retention rate: this is the value of sales achieved from the retained customers, expressed as a percentage of the sales achieved from all customers who were active at the beginning of the period.
•    Profit-adjusted retention rate: this is the profit earned from the retained customers, expressed as a percentage of the profit earned from all customers who were active at the beginning of the period. A high raw customer retention rate does not always signal excellent customer retention performance. This is because customer defection rates vary across cohorts of customers. Defection rates tend to be much higher for newer customers than longer tenure customers. Over time, as seller and buyer demonstrate commitment, trust grows and it becomes progressively more difficult to break the relationship. Successful customer acquisition programmes could produce the effect of a high customer defection rate, simply because new customers are more likely to defect

      
       How to calculate retention rate
According to ROI expert Tom Pisello, CEO and President of Alinean, the customer retention rate is calculated by determining the number of customers lost over a period of time compared to repeat customers over the same amount of time. Pisello said, "A customer is one who continues to make purchases, and a lost customer is one who has made purchases, but does not repeat these purchases for some time. The key is to analyze the repeats over a long enough horizon." The calculation is:
(Total number of customers minus the number of repeat customers) divided by total number of customers )
      Building customer retention strategies
As Lowenstein points out, customer loyalty is all about driving perceived value, whether that is rational (functional, quality, cost, etc.), emotional (trust, service, communication, information, brand equity, etc.) or a combination of these two dimensions. The advice for building a customer retention strategy is to identify what leverages top-end customer commitment and advocacy behavior, and then build customer experience around it. According to Lowenstein's research on customer retention, there is no standard schedule for how often to communicate with customers to build loyalty.
An important distinction can be made between strategies that lock the customer in by penalizing their exit from a relationship, and strategies that reward a customer for remaining in a relationship. The former are generally considered negative, and the latter positive, customer retention strategies. Negative customer retention strategies impose high switching costs on customers, discouraging their defection. In the following sections we look at a number of positive customer retention strategies, they are listed as
Customer delight
Customers are delighted when they feel that the product/service not only fulfills their
needs and expectations, but also gives them unexpected value. In other words, customers can be
delighted when they get more than they expected before hand. In this study delighting customers means that when shopping in the grocery store, customers will find all the products they are looking for, but also they find their shopping trip more convenient or faster etc. than they expected before going to the store. Delighting customers, or exceeding customer expectations, means going beyond what would normally satisfy the customer. This does not necessarily mean being world-class or best-in-class. It does mean being aware of what it usually takes to satisfy the customer and what it might take to delight or pleasantly surprise the customer. You cannot really strategize to delight the customer if you do not understand the customer's fundamental expectations. You may stumble onto attributes of your performance that do delight the customer, but you cannot consistently expect to do so unless you have deep customer insight. Consistent efforts to delight customers show your commitment to the relationship. Commitment builds trust. Trust begets relationship longevity.
Customer delight occurs when the customer's perception of their experience of doing business with you exceeds their expectation. In formulaic terms:
CD = P > E where CD = customer delight, P = perception and E = expectation.
Figure below identifies a number of priorities for improvement (PFIs) for a restaurant company. The PFIs are the attributes where customer satisfaction scores are low, but the attributes are important to customers.



 
 
 
Add customer-perceived value
The second major positive customer retention strategy is to add customer-perceived value. Companies can explore ways to create additional value for customers. The idea is to add value for customers without creating additional costs for the company. If costs are incurred then the value-adds may be expected to recover those costs. For example, a customer club may be expected to generate a revenue stream from its membership. There are three common forms of value-adding programme: loyalty schemes, customer clubs and sales promotions.
•    Loyalty schemes: Loyalty schemes reward customers for their patronage. Loyalty schemes or programmes can be defined as follows:
A loyalty programme is a scheme that offers delayed or immediate incremental rewards to customers for their cumulative patronage. The more a customer spends, the higher the reward. Loyalty programmes provide added value to consumers at two points, during credit acquisition and at redemption. Although the credits have no material value until they are redeemed, they may deliver some pre-redemption psychological benefits to customers, such as a sense of belonging and of being valued, and an enjoyable anticipation of desirable future events. At the redemption stage, customers receive both psychological and material benefits. The reward acts to positively reinforce purchase behavior. It also demonstrates that the company appreciates its customers. This sense of being recognized as valued and important can enhance customers ' overall sense of well-being and emotional attachment to the firm. However, customers can become loyal to the scheme, rather than to the company or brand behind the scheme. One major concern is that loyalty schemes may not be creating loyalty at all. Loyalty takes two forms: attitudinal and behavioral loyalty. Attitudinal loyalty is reflected in positive effect towards the brand or supplier. Behavioral loyalty is reflected in purchasing behavior. There is very little longitudinal evidence about shifts in customer behaviors after joining a loyalty scheme
•    Customer clubs: Customer clubs have been established by many organizations. A customer club can be defined as follows:
A customer club is a company-run membership organization that offers a range of value-adding benefits exclusively to members. The initial costs of establishing a club can be quite

high, but thereafter most clubs are expected to cover their operating expenses and, preferably, return a profit. Research suggests that customer clubs are successful at promoting customer retention.
•    Sales promotions: Whereas loyalty schemes and clubs are relatively durable, sales promotions offer only temporary enhancements to customer value. Sales promotions, as we know can also be used for customer acquisition. Retention-oriented sales promotions encourage the customer to repeat purchase, so the form they take is different. Here are some examples.
•    In-pack or on-pack voucher
•    Rebate or cash back
•    Patronage awards
•    Free premium for continuous purchase
•    Collection schemes
•    Self-liquidating premium
Bonding
The next positive customer retention strategy is customer bonding. B2B researchers have identified many different forms of bond between customers and suppliers. These include interpersonal bonds, technology bonds (as in EDI), legal bonds and process bonds. These different forms can be split into two major categories: social and structural.
 
•    Social bonds: Social bonds are found in positive interpersonal relationships between people on both sides of the customer-supplier dyad. Positive interpersonal relationships are characterized by high levels of trust and commitment. Strong social bonds can emerge between employees in companies having similar sizes, cultures and locations. For example, small and medium-sized businesses generally prefer to do business with similar sized companies, and Japanese companies prefer to do business with other Japanese companies. Geographic bonds emerge when companies in a trading area cooperate to support each other. Social relationships between buyer and seller can be single or multilevel. Social bonds characterized by trust generally precede the development of structural bonds.
•    Structural bonds: Structural bonds are established when companies and customers commit resources to a relationship. Generally, these resources yield mutual benefits for the participants. A key feature of structural bonding is investment in adaptations to suit the other party. Suppliers can adapt any element of the offer – product, process, price and inventory levels, for example – to suit the customer. Customers, on the other hand, also make adaptations. For example, they can adapt their manufacturing processes to accommodate a supplier's product or technology.
Build customer engagement
The final positive strategy for building customer retention is to build customer engagement. Various studies have indicated that customer satisfaction is not enough to ensure customer longevity. For example, Reichheld reports that 65 to 85 percent of recently defected customers claimed to be satisfi ed with their previous suppliers. Another study reports that one in ten customers who said they were completely satisfied, scoring ten out of ten on a customer satisfaction scale, defected to a rival brand the following year. Having satisfied customers is, increasingly, no more than a basic requirement of being in the game. Highly engaged customers have levels of emotional or rational attachment or commitment to a brand, experience or organization that are so strong that they are highly resistant to competitive influence




Benefits of customer retention: statistics
•    Acquiring new customers can cost five times more than satisfying and retaining current    customers
•    A 2% increase in customer retention has the same effect on profits as cutting costs by 10%
•    The average company loses 10% of its customers each year
•    A 5% reduction in customer defection rate can increase profits by 25-125%, depending on the industry
•    The customer profitability rate tends to increase over the life of a retained customer

CONCLUSION

The goal of this study was to examine customers, their values and satisfaction. We include the changing and basic needs of customers, their behavior along with customer life cycle.
This study aimed at providing an answer to the question what is customer retention and why we need to retain our customers. Empirical study indicates that after adopting some customer retention strategies we can improve the customer retention rate. Overall this study gives the organization a firm idea to know about customer and how to make their values in the eyes of customers
REFERENCES
•    Balancing Messaging and Experience: The CRM 'Lasagna' Recipe for Creating Customer Advocacy: article wrote by Lowenstein
•    Creating Consumer Value Through Customer Delight, authored by Niina Laukkanen.ECR journal, International Commerce Review
•    Customer Relationship Management, Second Edition, authored by Francis Buttle, published by Butterworth-Heinemann.