Customer Retention

Customer retention should thus become a part of the strategic marketing planning process of any firm. It is important to define customer retention and also to understand how it can be measured.

The definition of customer retention should take into consideration its appropriateness to the business of the firm. There are issues regarding whether the absolute number of customers or their relative purchases should be considered for definition purpose. An associated concern is whether the purchases should be in terms of volume or value. Research has also indicated that the definition of customer retention that is in terms of percentage share of customer savings, borrowings, spending, or purchases is more useful than just absolute numbers of customers.

Analysing complaint and service data is a good method to identify problems and understand why customers defect. Analysis should be statistical and should be fairly detailed in order to understand the underlying patterns of the problems.

Strategic bundling is another way of erecting a barrier against defections that can lead to enhanced customer retention. A bundle is a group of products or services offered as a single cost saving and convenient package. A customer who opts for a bundle will not switch to a competitor even if he is offered a better deal on a single item of the bundle.

Strategies for retaining customers

The strategies for retaining customers are a function of the nature of the product, the stage of the product life cycle, and the buying behavior of the customers. Customer value affects customer satisfaction, which in turn affects loyalty. Customer loyalty affects customer retention. Loyalty of the customer increases with customer satisfaction at an increasing rate.

In service marketing, customer retention has been conceptualised as resulting from customer perceptions of service quality and customer satisfaction. Scholars have advocated four steps as essential to retain customers:

• define the market structure,
• segment the customer base and determine segment value,
• identify the segments’ service needs, and
• implement a segmented service strategy.

Benefits of customer retention

Revenues are enhanced due to increased sales and costs are lowered due to lesser generation and marketing costs of such revenues. Scholars have outlined six economic benefits of customer retention:

• savings on customer acquisition or replacement costs,
• a guarantee of base profits as existing customers are likely to have a minimum spend per period,
• growth in per customer revenue over time,
• a reduction in relative operating costs as firms can spread the cost over many more customers and over a longer period,
• free of charge referrals of new customers from existing customers, and
• price premiums as current customers usually do not wait for promotions or price reductions before they make their purchases.