Why Customer Retention Is So Important
Why Customer Retention Is So Important
Good customer retention is vital to any organization because a slight reduction (5%) in the customer defection rate has a disproportionately positive effect on profitability (depending on the cost of acquisition, ranging between 25 and 80 %!). Companies with high retention also grow faster. However, customers can only be retained if they are loyal and motivated to resist competition. When customers are merely satisfied with the service they receive they may still "walk". Your customer retention management relies on the combination of the following:
High satisfaction with product performance and customer service.
High intention to continue to do business with you.
High willingness to recommend you to others.
(High means the top-box score [typically of a five-point scale] in quantitative measurements)
There are two components of customer retention. Both need to be pursued.
Customer satisfaction.
Systematic and proactive customer relationship management.
Customer Retention By Using Consumer Behavior Concepts:
Customer retention makes it in the best interest of customers to stay with the company rather than switch to another firm.
Loyal customers buy more products. Loyal customers are fewer prices sensitive and pay less attention to competitor’s advertising.
Servicing existing customers, who are familiar with the firm’s offerings and processes, is cheaper.
Loyal customers spread positive word of mouth and refer other customer.
Customer profitability-focused marketing tracks costs and revenues of individual customers’ ad then categorizes them into tiers based on consumption behaviors that are specific to the company’s offerings.
Recent Study advocates using “customer pyramid” where customers are grouped in 4 ties:
1. The Platinum Ties includes heavy users who are not price sensitive and who are willing to try new offerings.
2. The Gold Tier It consists of customers who are heavy user but not as profitable because they are more
Good customer retention is vital to any organization because a slight reduction (5%) in the customer defection rate has a disproportionately positive effect on profitability (depending on the cost of acquisition, ranging between 25 and 80 %!). Companies with high retention also grow faster. However, customers can only be retained if they are loyal and motivated to resist competition. When customers are merely satisfied with the service they receive they may still "walk". Your customer retention management relies on the combination of the following:
High satisfaction with product performance and customer service.
High intention to continue to do business with you.
High willingness to recommend you to others.
(High means the top-box score [typically of a five-point scale] in quantitative measurements)
There are two components of customer retention. Both need to be pursued.
Customer satisfaction.
Systematic and proactive customer relationship management.
Customer Retention By Using Consumer Behavior Concepts:
Customer retention makes it in the best interest of customers to stay with the company rather than switch to another firm.
Loyal customers buy more products. Loyal customers are fewer prices sensitive and pay less attention to competitor’s advertising.
Servicing existing customers, who are familiar with the firm’s offerings and processes, is cheaper.
Loyal customers spread positive word of mouth and refer other customer.
Customer profitability-focused marketing tracks costs and revenues of individual customers’ ad then categorizes them into tiers based on consumption behaviors that are specific to the company’s offerings.
Recent Study advocates using “customer pyramid” where customers are grouped in 4 ties:
1. The Platinum Ties includes heavy users who are not price sensitive and who are willing to try new offerings.
2. The Gold Tier It consists of customers who are heavy user but not as profitable because they are more