UNIVERSITY OF CANBERRA

Division of Communication and

Education School of Professional
Communication

INTEGRATED
COMMUNICATION
CAMPAIGNS M
Essay on

CustomerRetention
Many recent books on Marketing Communication stress
the importance of customer retention. Explain why this is
important and the strategies available to achieve this goal

Lecturer: Raveena Singh

Presented by: Kraivich Kraisintu ID3003196
Submission date: 21st October 2005

Customer Retention, its importance & strategies

Customer Retention, its importance & strategies

It boils down to this: When you build a plant, it starts depreciating the day it opens. The
well-served customer, on the other hand, is an appreciating asset. Every small act on her
or his behalf ups the odds for repeat business, add-on business and priceless word-ofmouth referral.

Tom Peters

Todays smart companies do not see themselves as selling products; they see themselves
as creating profitable customers. They not only want to create customers. They want to
own them for life.

Philip Kotler

MBNA, one of the worlds largest credit card companies, found that an increase by 5%
in retention rate contributed to 60% increase in companys retained earnings within five
years1.

Regardless of economic condition, loyal customers are always of vital importance to the
companies, even non-profit organizations would find it inevitable to retain their brand
believers and contributors to thrive and success in todays fast-paced market
environment, where consumers are becoming harder to please, they are smarter, more
demanding, less forgiving, and they are approached by many competitors providing
equivalent or better offerings2, as a result, the challenge is not producing satisfied
customers, but delighted and loyal customers.
1

Loyalty: Put a New Lens of Loyalty to Magnify Profitability (Thai Edition), Reichheld F. & Schefter P.,
Page 47, October 2004, ExperNet
2
Marketing Management, Eleventh Edition, Kotler P., Page 73, 2003, Prentice Hall

Customer Retention, its importance & strategies

So what is customer retention? Many Integrated Marketing Communications books

focus upon Customers and Customer Retention as it is the center of a Customer-Centric
integrated organization, which is one of the eight guiding principles of IMC 3,
surprisingly; very few of them have defined Customer Retention, despite the word
itself being so generic and could seem easy to understand, 80% of the customer retention
program failed4. The definitions of customer retention are as follow:-

-Customer retention is the marketing goal of keeping your customers from

going to the competition
Adobe Systems Incorporated

-The philosophy of treating customers so well that they lack any reason to go
anywhere else. The philosophy of building your business on the basis of repeat
sales, past customers and word-of-mouth recommendations
H. Gerard Gaudet

-Customer Retention is a tactically driven approach based on customer

-behavior. It is the core activity going on behind the scences in Relationship
Marketing, Loyalty Marketing, Database Marketing, Permission Marketing and
so forth
Anonymous

IMC The Next Generation, Schultz D. & Schultz H., Page 50, 2003, McGraw Hill
Experiential Relationship Management, Dejkriankraikul C., Kanawun N. & Saetung T., Page 17, 2002,
Amarin Printing & Publishing
4

Customer Retention, its importance & strategies

The first and second definition, by Adobe Systems Incorporated and H. Gerard Gaudent
respectively, do not thoroughly cover what customer retention really does, it is not only to
prevent customers from turning to competitors;

Argument: Customers are not only leaving to competitors or anywhere else, they
have other reasons to go

There are six types of customers who leave, Price, Product, Service defectors are those
leaving to competitors, whereas Market Defectors, who are lost but not to any other
business as they may go out of business or to another market, Technological Defectors,
who switch to products offered by companies outside the industry and, Organizational
Defectors, who switch due to internal or external politics5, are leaving for other reasons.

Besides, most definitions often state that customer retention is to keep customers
emphasis on past sales or repeat purchase, which could not be truer; however, such
actions can only be implemented after a sale, in this ever changing market
environment, with so fierce competition like never before, focusing only on postpurchase retention might no longer be enough.

Proposition: Customer Retention should start even before the business acquires a
customer

Customer retention: a potentially potent marketing management strategy, Ahmad, Rizal, Buttle, Francis,
Journal of Strategic Marketing, 9, 2001

Customer Retention, its importance & strategies

Customer retention should start even before they become customers, that is to deliver
the total brand experience before, during, and after sales for the utmost customer
satisfaction6. However, according to Philip Kotler, as proposed in his book Kotler on
Marketing, not every customer should be retained7, this issue will be discussed later in
the following session.

From the above arguments, the definition of customer retention has been redefined. The
new proposed definition is as follows:-

Proposed Definition of Customer Retention: Customer Retention is to establish

endless relationships between the company and worthwhile customers which
primarily aims at delivering customer experience that starts from acquiring, keeping
and always delighting them in such a way that they will, under any circumstances,
never leave and always stay loyal to the company.

Although there might be new concepts of customer retention and the strategies to achieve
that everyday, they all rely on the bottom line that;
A highly satisfied customer stays loyal longer, buys more as the company introduces
new products and upgrades existing products, talks favorably about the company and its
products, pays less attention to competing brands and is less sensitive to price, offers
product or service ideas to the company, and cost less to serve than new customers
because transactions are routine. And from all of these, it finally comes to one of the
6

Experiential Relationship Management, Dejkriankraikul C., Kanawun N. & Saetung T., Page 42, 2002,
Amarin Printing & Publishing
7
Kotler on Marketing: How to create, win and dominate markets, Kotler P., Page 128, 1999, The Free Press

Customer Retention, its importance & strategies

bottom lines for every business; the company can make more profits, reduce operating
cots and increase consumer switching cost as a result of retaining customers.

After redefining customer retention, it could be helpful to know what customer

retention has been, before deciding what it should be in the future. Since the
Industrial Revolution, most manufacturing companies have used production-oriented
operations. They have traditionally focused on making products and then promoting those
items to customers, hoping that enough people will buy them to cover costs and gain
profits. The shelves of local grocery store show how a product orientation affects the
marketplace. According to a study, a number of new products found in grocery stores
each year has grown from less than 3,000 a year in 1980 to more than 17,000 a year
today.

The emphasis on production made the firms focus on individual sales or transactions,
which involves buyer and seller exchanges characterized by limited communications and
little or no ongoing relationships between two parties. In such transaction-based
marketing, the primary goal is to entice a buyer to make a purchase based upon reasons
such as low price, convenience, packaging, or similar inducements. This activity serves a
short-term goal, which is creating a sale now. While this style of marketing is still
widespread, many organizations are trying a new approach, they have found that creating
long-term relationships with customers, that is to be able to retain them, pays off in
increased sales and decreased marketing costs.

Customer Retention, its importance & strategies

Transaction-based marketing was the norm for decades, but now businesses understand
that they must do more than simply creating products and then selling them. They started
to focus upon customer life time value and relationship marketing, and customer
retention is a key to achieve that8.

Lets now go straight into the essays topic, why customer retention, and how is it
important? These are some interesting facts about customer retention9:
-Acquiring new customers can cost five times or more than the cost 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.
-The average company loses 10 percent of its customers each year.
-A 5 % reduction in the customer defection rate can increase profits by 25 percent
to 85 percent, depending on the industry.
-The customer profit rate tends to increase over the life of the retained customer.
-If the company were to be sold, the acquiring company would have to pay not
only for the plant and equipment and the brand name, but also for the delivered
customer base, namely, the number and value of the customers who would do
business with the new firm.

The following are economic benefits of customer retention as proposed by Ahmad, Rizal,
Buttle and Francis in Journal of Strategic Marketing. The reason why this proposition is
used is because, compared to other propositions, it provides adequate theoretical

8
9

Contemporary Marketing Wired, Ninth Edition, Boone L. & Kurtz D., Page 334, 1998, The Dryden Press
The customer revolution, Pipatsaereethum K., Page 56, 2005, Matichon Press

Customer Retention, its importance & strategies

perspectives, at the same time it could be very practical too. However, several arguments
were made regarding the benefits of customer retention.

1. Savings on customer acquisition or replacement costs

Most marketing and marketing communication books often said that acquiring new
customer would cost less than retaining the existing ones, in which the ratio, whether it is
5:1, or 7:1, depending upon the industry where the business is in. The following is a
proof, by Philip Kotler:-

Is the NEW customer worth getting?10

Lets have a look at this following example,
The cost of acquiring new customer is as follows

1. Annual cost of a salesperson

2. Number of annual calls by a salesperson
3. Cost of an average sales call (1/2)

$100,000
200
$500

4. Average number of sales calls to convert a

Prospect into a customer
5. Cost of attracting a new customer (CAC) (3x4)

x4
$2,000

The $2,000 cost is actually an underestimate, because we are omitting the cost of IMC
and operations as well as the fact that not all prospects will be converted into customers.

10

Kotler on Marketing: How to create, win and dominate markets, Kotler P., Page 128, 1999, The Free
Press

Customer Retention, its importance & strategies

Now suppose this company estimates average customer lifetime profit:

1. Annual customer revenue

2. Average number of loyal years
3. Company profit margin
4. Customer lifetime profit (CLP) (1x2x3)

$10,000
x2
x .10
$2,000

Even though the estimate of CLP is overstated as it omits the cost of maintaining the
account through salesperson visits, ads and many more. The conclusion is that the
company is paying more to get a new customer than the customer himself is worth. As a
result, the company must find a way to reduce CAC and increase its CLP. The reduce
CAC, the company must reduce some operating costs and increase the efficiency of
prospect conversion, whereas to increase CLP, the company must sell more to each new
customer, keep them for more years, and sell them more profit items.

Despite the fact that the cost of acquiring new customers, which has already been proven,
is higher than the cost of retaining existing ones, it does not necessarily mean that the
budget for customer acquisition could be reduced when the retention rate appears to be
higher, especially if the business is new and still lacks of solid customer base, as a result,
these two are completely separated budgets.

Argument: The rate of customer retention does not necessarily imply savings on
customer acquisition

Customer Retention, its importance & strategies

10

Hypothesis: The relationship between customer retention and customer acquisition

rate is not always directly proportional, there could be some other factors, for example
stage of company development or corporate strategy that could affect this relationship

Furthermore, according to the proposed definition of customer retention, customer

retention starts even before we acquire them, this could as well affect acquisition cost,
according to the following proposition;

Proposition: Apart from customer retention, business should also focus upon customer
acquisition, not number of customers acquired, but the quality of how a particular
customer is acquired, to deliver a great brand experience using Integrated Marketing
Communication from the day a customer first meets the brand.

Looking from this propositions perspective, it is needless to say that the company should
retain customers than acquire new ones; it is an integrated function in which each of them
supports one another. But can the business still save cost from customer retention? Yes, as
stated in the proposition, the business should not focus upon number of customers
acquired, but the quality of how a particular customer is acquired, as a result, customer
retention can still cut costs associated with acquiring new customers. However, there
could be a cost for improving customer acquisition, but consider the possible increase in
CLV (Customer lifetime value), this could be worth.

Customer Retention, its importance & strategies

11

2. A guarantee of base profits as existing customers are likely to have a minimum

spend per period.
Consider the following diagram:-

Figure 1: Customer Retention Diagram (source: Customer Equity Management, Robert Shaw)
Figure 1 proves a guarantee of base profits by retained customers, even though no, or
very few new customers are acquired, there are still revenues from repeat purchases, in
other words, retention has its own economic value.

3. Growth in per customer revenue over time

When we talk about growth in per customer revenue over time, many books suggest this
following formula to measure Customer Lifetime Value (CLV) as follow:Calculating rough Customer Lifetime Value11, as proposed by Professor Philip Kotler

11

Kotler on Marketing: How to create, win and dominate markets, Kotler P., Page 128, 1999, The Free
Press

Customer Retention, its importance & strategies

1. Annual customer revenue

2. Average number of loyal years
3. Company profit margin
4. Customer Lifetime Value (CLV) (1x2x3)

12
$10,000
x2
x .10
$2,000

This formula is omitting acquisition cost as well as retention cost. Some books have
included such costs into formula, some other books propose a complex mathematic
equation, but still there is no possible add-on sales and add-on selling costs, which is
contributed by database marketing in IMC

Proposed Formula:
Customer Lifetime Value = Average profit margin x [(Annual Customer revenue x
Average number of loyal years) - (acquisition cost per customer+ retention cost per
customer) + (add-on sales per customer - add-on selling costs per customer)]

Each variable in the above formula can be substituted by either a rough estimated number
or a complex mathematical equation for the maximum accuracy.

4. A reduction in relative operating costs as firms can spread the cost over many
more customers and over a longer period
Consider the following graphs:-

Customer Retention, its importance & strategies

13

Figure 2: Customer Trends (source: Customer Equity Management, Robert Shaw)

Figure 3: Financial Trends (source: Customer Equity Management, Robert Shaw)

From Figure 2, this company obviously uses customer retention as a key strategy, they
are trying to increase the number of retained customers at the same time acquire new
customers at a decreasing rate, from Figure 2, surprisingly, due to customer retention,

Customer Retention, its importance & strategies

14

revenue, gross contribution and net profit grow. Moreover, the gap between revenue and
gross contribution is getting wider, implying that the company earns more contribution
margin (Revenue minus costs), which also implies lowered operating costs.

5. Free of charge referrals of new customers from existing customers

According to Tom peters, It boils down to this: When you build a plant, it starts
depreciating the day it opens. The well-served customer, on the other hand, is an
appreciating asset. Every small act on her or his behalf ups the odds for repeat business,
add-on business and priceless word-of-mouth referral. He, and Ahmad, Rizal, Buttle,
Francis who proposed the six economic benefits of customer retention, conclude that
customer retention refers to word-of-mouth referral, however, from my point of view, not
every retained customer will talk favorably about the brand to other people, this should
depend upon the stage of loyalty in which a customer is in;

Argument: Retaining customers does not always imply free-of-charge referrals

There are a number of retained customers whose loyalty does not yet reach some certain
stage and thus when they are not loyal enough, they have no reason to promote the brand.
The theory that supports this argument belongs to Payne and Rickard, who proposed
The relationship marketing ladder of customer loyalty

Customer Retention, its importance & strategies

15

Figure 4: The relationship Marketing ladder of Customer Loyalty

(Source: Payne and Rickard [1993])
Those who are talk favorably about the company are most likely in the stage of advocate
and supporter, but retained customers should be somewhere between customers turning to
clients, to advocate, as a result, certainly only a partial of retained customers will refer to
other people.

6. Price premiums as current customers usually do not wait for promotions or price
A study reveals that sales promotions which focus upon price reduction only get 30%
new customers, the rest are loyal customers who will still buy without any sales
promotions12. As a result, there is no reason to run sales promotion and compete in price
wars if there customers are loyal enough.

12

Experiential Relationship Management, Dejkriankraikul C., Kanawun N. & Saetung T., Page 22, 2002,
Amarin Printing & Publishing

Customer Retention, its importance & strategies

16

Proposition: Sales promotions should be the last way for the company to boost the
sales, if customers are so well treated, retained and are loyal to the company, the
switching cost should be increased, and there is then no reason for the company to go
into the price-war battle.

Apart from economic benefits, there is also non-economic benefit, which is, Increased
customer trust, commitment, loyalty and cooperation, which are all the results of
customer retention; however, there are more of non-economic benefits which are to be
proposed in the next few lines.

New Proposed Benefits:

Benefits for customer-centric organization implementing IMC
Customer insights are of vital importance for organizations implementing IMC, as a
customer centric organization uses outside-in planning, which starts from customers. The
more the company is able to retain customers, the more they know about customers as
they have more time to learn from customers and build their solid customer database.

Better offerings and treatments for customers

This is similar to the first proposed benefit Benefits for customer-centric organization,
but looking from the viewpoint of customers, as the company knows more about
customers, they could be able to deliver better offerings which better suit customers
preferences. Moreover, the database, along with Integrated Marketing Communication

Customer Retention, its importance & strategies

17

plan, enable the company to know what customers like and dislike, and the way to treat
and please them individually.

Employee Retention
From the opening case MBNA, one of the worlds largest credit card companies, found
that an increase of 5% in retention rate contributed to 60% increase in companys retained
earnings within five years.

This is a continuing story, the management of MNBA said customer Retention is not
only the key to making huge profits, but it is also a major part of the profit making
engine in the company, which enhances customers loyalty as well as employees
loyalty.13

This is how it works, favorable retention rate brings about higher share, lower cost of
acquiring new customers and service, the company is then able to give more incentives to
its employees, which reduces turnover rates, and when they work longer, they become
more experienced, as they become more experienced, they can better serve the customers,
the retention rates for both are thus higher.

Before going to the strategy part, it would be very helpful to know if all customers are
worth retaining, as the propose definition suggests that only worthwhile customers
should be retained. While all customers are important, some are more important than

13

Loyalty: Put a New Lens of Loyalty to Magnify Profitability (Thai Edition), Reichheld F. & Schefter P.,
Page 47, October 2004, ExperNet

Customer Retention, its importance & strategies

18

others due to recency, frequency and monetary value. Companies usually think their
largest customers are the most profitable ones and their smallest are the least profitable
ones, but they seem to disregard the fact that companys largest customers are most likely
to get the highest discounts and demand the most services whereas medium-sized
customers tend to demand less.

Therefore, companies must fine the way to measure individual customer profitability, and
that is why they are starting to apply activity-based costing (ABC) to determine the actual
cost of services delivered to each customer so that the customer profitability can be
determined.

The 20/80 rule, which says that 20% customers contribute 80% to companys total
revenues, has been modified recently into the 20/80/30 rule14, the poorest 30% of the
companys customers cuts the companys potential profits in half has been added,
especially in Banking industry, some banks report that they lost money on 40 percent of
their weakest retail customers. There are two ways to do with those 30%, some
companies say fire them the other say How can we turn them into profitable ones?

So, are all customers worth retaining? No, at least not those who can not be turned to
profitable ones.15

14

IMC in Action, Lohtongkum T., Page 136, 2002, Tipping Point Press
Kotler on Marketing: How to create, win and dominate markets, Kotler P., Page 138, 1999, The Free
Press
15

Customer Retention, its importance & strategies

19

Lets now have a look at the strategies to achieve the goal, but due to the proposed
definition of customer retention and arguments discussed earlier in the beginning of this
essay, Customer Retention is to establish endless relationships between the company
and worthwhile customers which primarily aims at delivering customer experience
that starts from acquiring, keeping and always delighting them in such a way that they
will, under any circumstances, never leave and always stay loyal to the company.

This definition uses customer experience as a main strategy to achieve the goal, so
strategies to achieve this must totally been redefined too, unfortunately, most IMC and
customer retention books only suggest after sales service as the way to keep customers,
besides, most of the suggested strategies look more like tips than strategies, which look
in a broader term so that readers can use the proposed strategies as a guideline and
implement in their own ways to suit the industry that the business is in and more
importantly the customers that they have; as a result, the following strategies are all my
propositions, which are backed by some other sources

At every stage of the following strategies, customer experience should be determined,

whether they should feel satisfied, warm, confident and etc. to create brand value and to
reflect Customer Experience Platform that we want customers to touch or feel. For
instance:Customer Experience Platform 16
Apple Creative, Friendliness
Amazon Completeness, Convenience
16

Practical IMC, Pongsataporn S., Page 121, Nut Republic

Customer Retention, its importance & strategies

20

Dell Customizability
Disney Happy, with family
Intel Speed, Reliability

1. Continuing Sales
Using sales promotion to attract customers and generate one single sale from that is not
enough due to the fact that the cost of acquiring new customers is, as proven earlier, very
high, as a result, in order for the firm to make profits, they must find a way to make
customers purchase more often, along with the best experience they can have, by offering
what they expect and even beyond that. For example, in Thailand, more than 100,000
grocery stores were wiped out by the modern trade such as Tesco Lotus, BigC and 711(Seven Eleven). Freshmart, started out as a very small grocery store in Thailand in
1995, used its relationships with customers in the village to generate sales and avoid price
wars with those big stores. They started out from analyzing the weaknesses of the modern
trade as follows,
1. Modern trade stores didnt know their customers, didnt know their faces, didnt
know where they lived, what they did was greeting customers when they came in
and saying Thank you please come again when they went out.
2. And because of #1, because the company didnt really know their customers,
credit purchases were not possible, they couldnt take phone orders and there was
no home delivery

Customer Retention, its importance & strategies

21

Hypothesis: Given that no technology is used, small companies will be able to create
better relationships with customers than larger ones

After knowing their weaknesses, Freshmart started to build their own database, starting
from building customer profiles, purchase records, they knew when families living in that
area last purchased sugar, tissue paper, beer, cigarette or snacks. So they started greeting
customers by their names and asked where they lived, and from the purchase records this
small store knew when these families would run out of supplies, and used telephone to
generate sales. Moreover, they gave 7-day credit term which made it easier for customers
to buy, so even though there was also 7-11 in that village, Freshmart was still able to
compete with it. Unfortunately, when Freshmart started to grow, they franchise their
business, and as a result, they lost control in terms of customer relationship management,
they are now like any other modern trade stores competing in price wars.

2. Emphasize on during and after sales service

Very often many companies only emphasize on before sales service 17, they give
customers a lot of promises, but during the sales, it becomes a duty of retailers or dealer,
and what the companies do is to hope that they will serve customers well and will be able
to answer every question that customers may ask. After the purchase, many times service
representatives are outsourced, so the companies have little or no control over it, which is
not an excuse for poor after-sales customer service. Customers will not blame the
outsourced company, but the brand that they purchased.

17

The customer revolution, Pipatsaereethum K., Page 96, 2005, Matichon Press

Customer Retention, its importance & strategies

22

Hypothesis : B2B (Business-to-Business) relationships affect B2C (Business-toConsumers) relationships

Therefore, companies must be able to manage good customer experience, starting from
pre-purchase, during-purchase to post-purchase. The service quality, in every stage, must
be strictly controlled to ensure customer satisfaction, thus the companies need to maintain
not only good relationships with customers but also retailers, dealers as well as the
outsourced companies.

3. Focus on Total solution or End results, not only on Features and Benefits
-Customers want to make holes in different sizes, not drills
-Customers want security, not insurance papers
-Customers want clean clothes, not detergents
-Customers want hygiene in their mouth, not bamboo toothpicks
-Customers want to look good and charming, not cosmetics
Looking at end results helps enhance value and customer experience, which finally leads
to good relationships, for example, OM Scott & Son, a company that sells grass seeds,
every year they needed to send business plan to bank to get loans approved. The banking
officer said We actually didnt care much about your plan because every year you hit the
target sales, we are confident that there shouldnt be any big problems with your
business, but could you please help us? We used your glass seeds but now our grass field
doesnt look so good, there are brown spots on the field. Could you help us? From that
moment, the owner of OM Scott & Son started to understand what his business was all

Customer Retention, its importance & strategies

23

about, he didnt sell seeds, but he sells beautiful grass field. Then he knew how to satisfy
customer, he expanded his business to grass fertilizers, glass cutters, field decoration, and
the company finally became one of the biggest companies in grass & gardening tools in
the United States.

4. Thrive for the best customer experience

This is of vital importance to customer retention, being able to retain them or not greatly
depends upon the experience a customer has, every contact point or touch point could
bring about great customer experience, starting from pre-purchase, during-purchase to
post-purchase. Consumption process of customers should also be taken into
consideration because experience could be built at every stage of the process.

For example, before sales, the company must arouse the interest and create demand for
the product, find ways to motivate their wants and needs when they encounter a problem
for their best experience. The company should also make customers feel acquainted with
the brand in order to maintain good relationships with them

During sales, the firm may help customers simplify their purchase decisions, using IMC
tools, for the very best experience, customer convenience, such as variety of payment
methods, installment plans, delivery services should also be offered, in other words,
enhancing the 4Cs in marketing communications will dramatically help enhance
customer experience.

Customer Retention, its importance & strategies

24

After sales, product storage, product installation, training, after sales service are all
possible consumption processes that consumers need to go through, the process depends
on the product category or industry that the company is in.

Hypothesis: If favorable experience is built into every consumers consumption

process, customers should be delighted and stay loyal to the brand.

5. Use indicators for every experience delivered to customers at every contact

points and consumption process
Without accountability, it is like ship without a rudder, indicators are used to control
experience, to illustrate this, consider the following example:Contact Point
Telephone Reservation

Experience

Indicators

Answer the call within one

-Number of telephone ring
ring, tell the hotels name,
before somebody answers
speakers name, and greet
the phone
customers by their name for -The speed of getting back
retained customers
to customers
Meet bellboy
Get the luggage within five -Time taken to take luggage
minutes with smiles
-Pleasant Personality
At Reception
Smile, look into customers -Save customers time
eyes before greeting him,
-Smiles
finish all the check-in
-First Impression
processes within five
minute
Table: A part of experience enhancement program at every contact point with indicators
at Hilton Hotels (Source: Experiential Relationship Management, page 180)

Customer Retention, its importance & strategies

25

6. Emphasis not only on customer retention, but also employee retention

Employee retention could bring about customer retention, as discussed earlier in the
MBNA case, they focused upon customer retention, which brought them more profits so
that the company allocated some portion of the profits to be used as employees
incentives, which increased loyalty and productivity, as a result, they stayed longer, as
they stayed longer they knew customers better and served them better, better service
increases customer retention rate, and all of these have become an endless loyalty &
retention cycle.

Hypothesis: Employee retention is directly proportional to Customer retention

And we are finally at the last part, the challenges of customer retention, customer
retention becomes more and more challenging everyday, lets see why.

Technology & Competition

Technology enables big business to understand and keep records of their customers just
like the way small grocery stores do, as a result, customer might be very satisfied in the
first place. Unfortunately, many companies start to realize the importance of customer
retention and start their retention program, so what satisfies customers today may be just
industrys standard practice tomorrow, in other words, customer retention could intensify
the competition in the industry. Therefore, Customer Retention must be developed and
improved at all times, or soon it will mean nothing.

Customer Retention, its importance & strategies

26

Ethical Issue
Customer Retention is often linked with the companys database, and now the question is
Is the customer really want to be in that database?. The companys excuse that having a
particular customer on the database enables them to know a customer better and serve
him better, on one hand, it may surprise him; on the other hand, he could be very
frustrated if he does not want so, because the above excuse is not a reason for putting him
into the database.

Hypothesis: Database marketing helps increase retention rate only when that
particular customer is willing to be on the database

If customer does not see the value of being in the database, most likely he/she will ignore
the communications (Lohthongkum, T 2002). For the database program to be successful,
marketer must design the program from the customers point of view.

Selecting customers to retain

Determining the ones to retain and not retain using their economic values could be the
easiest way to do it. Unfortunately, this only takes demographic information into account,
in IMC, we talk more in terms of psychological and behavioral. Some, or even many
customers, do not have the natural characteristics necessary for companies to build
sustained relationships and increase retention (Grion, R 2003). Despite the fact that the
companies have been well nurturing these customers, they may not be what companies
want them to be, because companies seem to disregard the nature, the natural

Customer Retention, its importance & strategies

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characteristics of those customers. To illustrate this, lets think about parents nurturing
their child in the best possible way, hoping that he will grow up and be a doctor, but once
he grows up, he has his own natural characteristics which cannot be molded, he could
want to be the artist in which it is completely irrelevant to the way he is nurtured.
Unsurprisingly, customers who dont have the natural characteristics necessary for
companies to build sustained relationships and increase retention, no matter how much
the company spends, it could be worthless.

Therefore, I would suggest that, in the world of rapid technology development,

behavioral and psychological characteristics should also be taken into consideration, not
only the economical value of a particular customer.

The balance of acquisition and retention

My new proposed definition also takes acquisition into the retention program as it states
that customer retentions starts from the day we acquire them, normally these two could
be completely irrelevant budgets, but as customer acquisition is becoming a part of
customer retention, customer acquisition and retention are integrated, it is thus a
challenge to balance the efforts and budget between them.

Last but not least, the company must make a very strong commitment to its retention
programs. The payoff in loyalty and retention may be years to come, so everyone must be
in it for the long term. This philosophy works only by making a deep, sincere
commitment to customer retention.

Customer Retention, its importance & strategies

28

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