HOME

TheInfoList




Customer retention refers to the ability of a company or product to retain its customers over some specified period. High customer retention means customers of the product or business tend to return to, continue to buy or in some other way not defect to another product or business, or to non-use entirely. Selling organizations generally attempt to reduce customer defections. Customer retention starts with the first contact an organization has with a customer and continues throughout the entire lifetime of a relationship and successful retention efforts take this entire lifecycle into account. A company's ability to attract and retain new customers is related not only to its product or services, but also to the way it services its existing customers, the value the customers actually perceive as a result of utilizing the solutions, and the reputation it creates within and across the
marketplace fa:بازار A market, or marketplace, is a location where people regularly gather for the purchase and sale of provisions, livestock, and other goods. In different parts of the world, a market place may be described as a ''souk'' (from the ...

marketplace
. Successful customer retention involves more than giving the customer what they expect. Generating loyal advocates of the
brand A brand is a name, term, design, symbol or any other feature that identifies one seller's good or service as distinct from those of other sellers. Brands are used in business Business is the activity of making one's living or making mon ...

brand
might mean exceeding customer expectations. Creating
customer loyalty The loyalty business model is a business model used in strategic management In the field of management Management (or managing) is the administration of an organization, whether it is a business, a not-for-profit organization, or governm ...
puts 'customer value rather than maximizing profits and
shareholder value Shareholder value is a business term, sometimes phrased as shareholder value maximization or as the shareholder value model, which implies that the ultimate measure of a company's success is the extent to which it enriches shareholders. It became pr ...
at the center of business strategy'. The key differentiation in a competitive environment is often the delivery of a consistently high standard of
customer service Customer service is the provision of Service (economics), service to customers before, during, and after a purchase. The perception of success of such interactions is dependent on employees "who can adjust themselves to the personality of the gues ...
. Furthermore, in the emerging world of
Customer Success Customer Success or Customer Success Management is the business method ensuring customers achieve Success (concept), success, their desired outcomes while using your product or service. Customer Success is relationship-focused client management, tha ...
, retention is a major objective. Customer retention has a direct impact on
profitability An economic profit is the difference between the revenue a has received from its outputs and the s of its inputs. Unlike an , an economic profit takes into account both a 's and costs, whereas an accounting profit only relates to the explici ...
. Research by John Fleming and Jim Asplund indicates that engaged customers generate 1.7 times more revenue than normal customers, while having engaged employees and engaged customers return a revenue gain of 3.4 times the norm.


Measurement

The measurement of customer retention should distinguish between behavioral intentions and actual customer behaviors. The use of behavioral intentions as an indicator of customer retention is based on the premise that intentions are a strong predictor of future behaviors, such that customers who express a stronger repurchase intention toward a brand or firm will also exhibit stronger corresponding behaviors. Customer repurchase and retention behaviors can be measured in a variety of different ways which are enumerated in several award-winning articles published in the marketing discipline. The different studies that also involve different metrics to measure customer repurchase intention and actual repurchase behaviors are summarized in a series of review papers such as Keiningham and colleagues (2007), Gupta and Zeithaml (2006), and Morgan and Rego (2006).Morgan, Neil A., and Lopo Leotte Rego
"The value of different customer satisfaction and loyalty metrics in predicting business performance."
Marketing Science 25, no. 5 (2006): 426-439.
These studies point to the following general conclusions: # Customer satisfaction is a strong predictor of both customer repurchase intentions and repurchase behavior # Repurchase intentions are statistically significantly, and positively associated with repurchase behavior: as people's repurchase intention increases, so does their likelihood to actually repurchase the brand. However, the magnitude of the association, though positive, is moderate to weak—suggesting that intentions and behaviors are not interchangeable constructs to measure customer retention. # The association between different retention metrics is not always straightforward. It can be (a) non-linear exhibiting increasing or diminishing returns, (b) different for different customer segments), and also vary by type of industry. # Customer retention is a strong predictor of a firm's financial success, both using accounting and stock market metrics. A study of a Brazilian bank showed that bank branches that were more adept at efficiently satisfying and retaining customers were more profitable than their counterparts that did one or the other but not both. In terms of measurement, the intention measures can typically be obtained using scale-items embedded in a customer survey. The retention behaviors must be measured using secondary data such as/ accounting measures of the volume (amount and financial value) and frequency with which a customer purchases the firm's goods or services. This requires that the firm should have a strong customer information management department that can capture all the relevant metrics that may be needed for analysis. In a typical firm, these may come from a diverse set of departments such as accounting, sales, marketing, finance, logistics, and other customer research.


Antecedents and drivers

Customer retention is an outcome that is the result of several different antecedents as described below. #
Customer satisfactionCustomer satisfaction (often abbreviated as CSAT) is a term frequently used in marketing Marketing refers to activities a company A company, abbreviated as co., is a Legal personality, legal entity representing an association of people, whet ...
: Research shows that customer satisfaction is a direct driver of customer retention in a wide variety of industries. Despite the claims made by some one-off studies, the bulk of the evidence is unambiguously clear: there is a positive association between customer satisfaction and customer retention/ though the magnitude of the association can vary based on a whole host of factors such as customer, product, and industry characteristics. Some companies and individuals have created mathematical models to evaluate customer satisfaction. #
Customer delightCustomer delight is surprising a customer by exceeding his or her expectations and thus creating a positive emotional reaction. This emotional reaction leads to word of mouth. Customer delight directly affects sales and profitability of a company as ...
: Some scholars argue that in today's competitive world, merely satisfying customers is not enough; firms need to delight customers by providing exceptionally strong service. It is delighted customers who are likely to stay with the firm, and improve overall customer retention. More recently, it has been argued that customer delight may be more strongly applicable to hedonic goods and services rather than for utilitarian products and services. #
Customer switchingIn marketing and microeconomics, customer switching or consumer switching describes "customers/consumers abandoning a product or service in favor of a competitor". Assuming constant price, product quality, product or service quality, counteracting th ...
costs: Burnham, Frels, and Mahajan (2003, p. 110) define switching costs as "one-time costs that customers associate with the process of switching from one provider to another." Customers usually encounter three types of switching costs: (1) financial switching costs (e.g., fees to break contract, lost reward points); (2) procedural switching costs (time, effort, and uncertainty in locating, adopting, and using a new brand/provider); and (3) relational switching costs (personal relationships and identification with brand and employees). A recent meta-analysis examined 233 effects from over 133,000 customers and found that all three types of switching costs increased customer retention—however, relational switching costs have the strongest association with customer repurchase intentions and behavior. #
Customer relationship management Customer relationship management (CRM) is a process in which a business or other organization administers its interactions with customers, typically using data analysis to study large amounts of information. CRM systems compile data from a range ...
: Acknowledging the social and relational aspects—especially those embedded in services—it has been argued that firms can increase retention by focusing on managing customer relationships. Relationship management occurs when firms can take a longer-terms perspective, rather than a transactional perspective to managing their customer base. However, all long-term customers are not profitable, and worth retaining; sometimes, short-term transactional customers can be more profitable for the firm. As such, companies may have to strategically develop a framework to manage unprofitable customers.


Customer lifetime value

Customer lifetime value In marketing Marketing refers to activities a company A company, abbreviated as co., is a Legal personality, legal entity representing an association of people, whether Natural person, natural, Legal personality, legal or a mixture of both, ...
enables an
organization An organization, or organisation (Commonwealth English The use of the English language English is a of the , originally spoken by the inhabitants of . It is named after the , one of the ancient that migrated from , a peninsu ...

organization
to calculate the net present
value Value or values may refer to: * Value (ethics) In ethics Ethics or moral philosophy is a branch of philosophy Philosophy (from , ) is the study of general and fundamental questions, such as those about Metaphysics, existence, reason, E ...
of the
profit Profit may refer to: Business and law * Profit (accounting) Profit, in accounting Accounting or Accountancy is the measurement, processing, and communication of financial and non financial information about economic entity, economic en ...
an organization will realize on a
customer In sales Sales are activities related to selling or the number of goods sold in a given targeted time period. The delivery of a service for a cost is also considered a sale. The seller, or the provider of the goods or services, comple ...

customer
over a given period of time. Retention Rate is the percentage of the total number of customers retained in context to the customers that approached for cancelation.


Standardization of customer service

Published standards exist to help organizations deliver process-driven
customer satisfactionCustomer satisfaction (often abbreviated as CSAT) is a term frequently used in marketing Marketing refers to activities a company A company, abbreviated as co., is a Legal personality, legal entity representing an association of people, whet ...
and
Customer Success Customer Success or Customer Success Management is the business method ensuring customers achieve Success (concept), success, their desired outcomes while using your product or service. Customer Success is relationship-focused client management, tha ...
in order to increase the lifespan of a customer.
The International Customer Service Institute The International Customer Service Institute (TICSI) is an international partnership organisation to enable the recognition and sharing of global best practice in customer service. It was founded in 2005 operating out of London and Dubai and has de ...
(TICSI) has released The International Standard for Service Excellence (TISSE 2012). TISSE 2012 enables organizations to focus their attention on delivering excellence in the management of customer service, whilst at the same time providing recognition of success through a 3rd Party certification scheme. TISSE 2012 focuses an organization's attention on delivering increased customer satisfaction by helping the organization through a Service Quality Model. TISSE Service Quality Model uses the 5 P's -
Policy Policy is a deliberate system of guideline A guideline is a statement by which to determine a course of action. A guideline aims to streamline particular processes according to a set routine or sound practice. Guidelines may be issued by a ...

Policy
,
Processes A process is a series or set of Action (philosophy), activities that interact to produce a result; it may occur once-only or be recurrent or periodic. Things called a process include: Business and management *Business process, activities that pro ...
,
People A people is any plurality of person A person (plural people or persons) is a being that has certain capacities or attributes such as reason Reason is the capacity of consciously applying logic Logic is an interdisciplinary field wh ...

People
,
Premises Premises are land and building A building, or edifice, is a structure with a roof and walls standing more or less permanently in one place, such as a house or factory. Buildings come in a variety of sizes, shapes, and functions, and have been ad ...
, Product/
Service Service may refer to: Activities :''(See the Religion section for religious activities)'' * Administrative service, a required part of the workload of university faculty * Civil service The civil service is a collective term for a sector of gove ...
, as well as performance
measurement Measurement is the quantification (science), quantification of variable and attribute (research), attributes of an object or event, which can be used to compare with other objects or events. The scope and application of measurement are dependen ...

measurement
. The implementation of a customer service standard leads to improved customer service practices, underlying operating procedures and eventually, higher levels of customer satisfaction, which in turn increases
customer loyalty The loyalty business model is a business model used in strategic management In the field of management Management (or managing) is the administration of an organization, whether it is a business, a not-for-profit organization, or governm ...
and customer retention.


See also

*
Churn rate Churn rate (sometimes called attrition rate), in its broadest sense, is a measure of the number of individuals or items moving out of a collective group over a specific period. It is one of two primary factors that determine the steady-state level ...
*
Customer attrition Customer attrition, also known as customer churn, customer turnover, or customer defection, is the loss of clients or customers. Banks, telephone service companies, Internet service providers, pay TV companies, insurance firms, and alarm monitoring ...
*
Customer loyalty The loyalty business model is a business model used in strategic management In the field of management Management (or managing) is the administration of an organization, whether it is a business, a not-for-profit organization, or governm ...
*
Customer service Customer service is the provision of Service (economics), service to customers before, during, and after a purchase. The perception of success of such interactions is dependent on employees "who can adjust themselves to the personality of the gues ...
*
Customer Success Customer Success or Customer Success Management is the business method ensuring customers achieve Success (concept), success, their desired outcomes while using your product or service. Customer Success is relationship-focused client management, tha ...
*
Serial switcherIn marketing and microeconomics, customer switching or consumer switching describes "customers/consumers abandoning a product or service in favor of a competitor". Assuming constant price, product quality, product or service quality, counteracting th ...
*
The International Customer Service Institute The International Customer Service Institute (TICSI) is an international partnership organisation to enable the recognition and sharing of global best practice in customer service. It was founded in 2005 operating out of London and Dubai and has de ...


References

{{reflist Business terms Retention