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Customer Retention
Customers are becoming harder to please. They are smarter, more price conscious, more demanding, less forgiving and they are approached by many more competitors with equal or better offers. According to Jeffrey Gitomer, American author & business trainer, the challenges is not necessarily to produce satisfied customers but the actual challenge is to produce delighted and loyal customers. It has been found that:
1. Acquiring new customers can cost five times more than the costs involved in satisfying and retaining current customers. It requires a great deal of effort to induce satisfied customers to switch away from their current suppliers.
2. The average company loses 10 percent of its customers each year.
3. A 5 percent reduction in the customer defection rate can increase profits by 25 percent to 85 percent depending on the industry.
4. The customer profit rate tends to increase over the life of the retained customers.
Customer retention is more powerful and effective than customer satisfaction. Customer retention represents the activities that produce the necessary customer satisfaction that creates customer loyalty, which actually improves the bottom line. Customer satisfaction surveys, focus groups, interviews, and observations can help determine what customers think of a service or a product. Customer retention moves customer satisfaction to the next level by determining what is truly important to the customers and making sure that the customer satisfaction system focuses valuable resources on things that really matter to the customer.
There are two main ways to strengthen customer retention. One is to erect high switching barriers or cost. Customers are less inclined to switch to another supplier when this would involve high capital costs, high search costs, or the loss of loyal – customer discounts. The better approach is to deliver high customer satisfaction.
The definition of switching costs is quite
Customers are becoming harder to please. They are smarter, more price conscious, more demanding, less forgiving and they are approached by many more competitors with equal or better offers. According to Jeffrey Gitomer, American author & business trainer, the challenges is not necessarily to produce satisfied customers but the actual challenge is to produce delighted and loyal customers. It has been found that:
1. Acquiring new customers can cost five times more than the costs involved in satisfying and retaining current customers. It requires a great deal of effort to induce satisfied customers to switch away from their current suppliers.
2. The average company loses 10 percent of its customers each year.
3. A 5 percent reduction in the customer defection rate can increase profits by 25 percent to 85 percent depending on the industry.
4. The customer profit rate tends to increase over the life of the retained customers.
Customer retention is more powerful and effective than customer satisfaction. Customer retention represents the activities that produce the necessary customer satisfaction that creates customer loyalty, which actually improves the bottom line. Customer satisfaction surveys, focus groups, interviews, and observations can help determine what customers think of a service or a product. Customer retention moves customer satisfaction to the next level by determining what is truly important to the customers and making sure that the customer satisfaction system focuses valuable resources on things that really matter to the customer.
There are two main ways to strengthen customer retention. One is to erect high switching barriers or cost. Customers are less inclined to switch to another supplier when this would involve high capital costs, high search costs, or the loss of loyal – customer discounts. The better approach is to deliver high customer satisfaction.
The definition of switching costs is quite
References: * Dale H. Besterfiled, et al., 2003, Total Quality Management, chap. 3, pp. 67 - 90, Pearson Education, Inc. * Kotler, Philip. 2004. Marketing Management, 12th Edition, chap. 5, pp. 130 - 134, New Delhi: Prentice Hall.