Customer Loyalty and Retention Strategies

Customer Retention Strategies 2007

Outline
Definition of Customer Loyalty What Affects Customer Loyalty Relationship programs Customer life cycle Reasons for Lost Customers Customer Retention Strategies Problem Identification and Management Conflicts and customer complaints
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Customer loyalty
Customers commitment or attachment to a brand, store, manufacturer, service provider, or other entity. A behavior toward the product An attitude to behave

Customer Loyalty and Retention Strategies 2009

Behavioral brand loyalty

Measured by proportion of purchase Undivided loyalty AAAAAAAAAA Occasional switcher AAABAAACAA Switched loyalty AAAAAABBBB Divided loyalty AAABBBAABB Indifference ABCDADCDBD

Customer Loyalty and Retention Strategies 2009

Churn rate or Attrition Rate

The rate at which new customers try a product or service and then stop using it in a given period of time. Retention rate = 1 the attrition rate..

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Problems with behavioral approach A customer may be making a repeat purchase not because of any true loyalty or commitment, But because of convenience, price, availability, or inertia due to habit. Inertia suggests a low sensitivity to the brand since purchases are made without a real motive for the choice.
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Attitudinal brand loyalty

Include favorable attitude that reflects a preference or commitment expressed over time. Emotional attachment, evaluation No loyalty Inertial loyalty or spurious loyalty Latent loyalty

Customer Loyalty and Retention Strategies 2009

Relationship commitment
An enduring desire to maintain a valued relationship Loyal customers, high in repeat purchase behavior and strong in attitude

Customer Loyalty and Retention Strategies 2009

Transaction vs. relational continuum

Transaction Objective Make a sale Relational Create a customer

Characteristic

Anonymity

interdependence

Criteria of success Volume price, new Value customer enhancements, repeat exchange Interaction tone Sale as a Sale as an conquest, discrete agreement, event continuing process
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Customer Loyalty and Retention Strategies 2009

What affects customer loyalty

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Customer satisfaction

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Customer satisfaction
A post-purchase or post-choice evaluation that results from a comparison between those pre-purchase expectation and actual performance Satisfied customers may not be loyal customers. Xeroxs finding: satisfaction rating 4 is six times more likely to switch to others than rating 5.
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Emotional Bonding
Brand affect, brand equity Company attachment Establish feelings of closeness, affection, trust, and respect. IT may limit emotional bonds. Personal contacts, non-verbal signals, friendships, and personal interactions are critical elements.
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Trust
Willingness of customer to rely on the organization. Reduces uncertainty/risk Honest, fair, and responsible

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Choice reduction and habit

People have tendency to reduce choice. There can be a switch cost associated with change to the unfamiliar, untried, or the new. There may be cost in time, money, and risk

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History with the company

Corporate Image Contacts and purchase history Service experience Intergeneration influence

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Multi-faced loyalty
Customer loyalty to: Brand: promotion Product: production Company: public relations Customers: meeting, chats, reunion Price: discounts, coupons Places: sounds, excitement Variety: new options, variations,
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Guidelines for enhancing loyalty

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Relationship programs
Financial Incentives Social Bonding Structural-interaction

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Financial Incentives Increased customer loyalty to price, incentives

Frequent flyer/reader/buyer/visitors Rewards. Discounts, product upgrades, awards, prizes Related products or providers expand the net

Relationships concentrate exclusive on incentives tend to be weak. Average American Consumer: 3.5 programs

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Social Bonding
Refers to a friendly companionship, trust, and ties. Increased customer loyalty to the organization
Connections Personal insight, recognition, mutual affection Interpersonal interactions expand the link

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Structural-interaction
Use system design to solve problems, reinforce purchases, and recognize the importance of each customer.
Systemic mass personalization. Management Cultivation, simulation Artificial intelligence continues the connections

Increased customer loyalty to the experience.

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Customer life cycle

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Reasons for Lost Customers

Dissatisfaction Relative Advantage Conflict Loss of Trust Cease to need Novelty Seeking

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Customer Retention Strategies

Welcome Reliability Responsiveness Recognition Personalization Reward Strategies

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A welcome strategy
The organizations appreciation for the initiation of a relationship.
Creating a delightful surprise, making a good first impression First touch: additional customer information Reassure the buyers that they have made the correct choices. Treat like a first date. Dont overdo it!

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Reliability
The organization can repeat the exchange time and time again with the same satisfying results.
Keep promise Ensure consistent quality Continuous promotion is still the key.

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Responsiveness
The organization shows customers it really cares about their needs and feelings. Loyal employees create loyal customers. Internal marketing. Customer-contacted employees should have the authority as well as the responsibility for date to date operational activities and CRM decision.

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Recognition
Special attention or appreciation that identifies someone as having been known before. People respond to recognition. Recognition and appreciation help maintain and reinforce relationships.

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Personalization
Use CRM system to tailor promotions and products to the specific customers. Offer engine: take customer data after it is analyzed and applies it to create the offer or message that is appropriate to the individual customer. Ex., My site, Click stream analysis, free ride, etc.

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Access strategy
Identify how customers will be able to interact with the organization. General contact, product return, technical report, service representative, change a mailing address Is the access quick and easy?

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A Communication process

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Organization vs. customer initiated communication In organization-initiated communication, organizations must consider the intended message, channel (medium), and receiver characteristics. In customer-initiated communication, consider the establishment of toll free calls, web sites, priority access for providing services and collecting customer data.
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Customer-initiated communication

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Reward strategies
Frequent, best customers Partnership Management Program Switching costs: financial penalty, time loss, psychological barrier Termination Penalty

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Problem Identification and Management Rather tell the company than switch to a competitor or tell someone else. Acting rather than reacting. Build numerous mechanism for identifying customer problems.
Customer satisfaction survey Mysterious shoppers Websites, other contacts points
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Conflicts and Customer Complaints Level of dissatisfaction Attrition of blame Cost/benefits of actions Personal characteristics:
highly educated, self-confident, aggressive, Older women.
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Dealing with complaints

Having the skill to interact with different types of people. Trained in methods of interaction and in different style of communication. Be customer-centric. Let the customers know that they have been understood. Express regret Resolve conflict
Accommodation, Compromise, Termination

Follow-up and prevent recurrence Keep in touch and listen to customer

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Resolve conflict
A disagreement in which the views of the customer and the organization appear to be incompatible. Accommodation: a settlement that emphasizes cooperative behavior. Compromise: mutually acceptable middle ground that is somewhat satisfactory to both parties. Termination
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