Course Name: Customer

Relationship Management
Instructor: Dr. Akanksha Batra
Email: [email protected]
Customer retention

• Customer retention is the maintenance of continuous trading

relationships with customers over the long term
• Customer retention is the number of customers doing business with a
firm at the end of a financial year expressed as percentage of those
who were active customers at the beginning of the year
• Appropriate interval over which retention rate should be measured
depends on the customer re-purchase cycle
Example: Car insurance versus a mobile versus a car

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Your views

• Do you see a problem with this calculation?

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Customer retention

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Customer retention

• A solution to this problem is to consider three measures of customer

retention:
• Raw customer retention rate: This is number of customers doing business
with a firm at the end of a trading period expressed as percentage of those
who were active customers at the beginning of the period
• Sales-adjusted retention rate: This is the value of sales achieved from the
retained customers expressed as a percentage of the sales achieved from all
customers who were active at the beginning of the period
• Profit-adjusted retention rate: This is the profit earned from the retained
customers expressed as a percentage of the profit earned from all customers
who were active at the beginning of the period

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Customer retention
• Economics of customer retention
• Increasing purchases as tenure grows
• Lower customer management costs over time
• Customer referrals
• Premium prices
• Customer retention or Value retention?
• Which customers to retain?
The prime targets for a company’s customer retention efforts should be
those who have greatest strategic value to the company. These are the
customers who have high CLV (customer lifetime value), or are otherwise
strategically significant as high-volume customers, influencers, or door
openers
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Customer retention

• Positive and negative retention strategies

• Negative customer retention strategies impose high switching costs
on customers, discouraging their defection
• Example: Penalty clause for ending relationship early
• Non-refundable booking amount
• Number change if you switch network providers
• Problems
• Negative WOM
• No repeat customers

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Positive customer retention strategies
• Improve customer engagement through interaction, participation,
connection
• Understand and meet customer expectations
• Identify priorities for improvement (PFIs)
• Focus on customer delight: Kano’s customer delight model- Basic qualities are
those that the customer routinely expects in a product. For example, a car’s
engine should start first time every time, and the sunroof should not leak. The
second form is linear quality. These are attributes of which the customer
wants more, or less. For example, more comfort, better fuel economy and
reduced noise levels. Better performance on these attributes generates better
customer satisfaction. The third form of quality is attractive quality. These are
attributes that surprise, delight and excite customers

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Positive customer retention strategies

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Positive customer retention strategies

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Positive customer retention strategies
• Add customer-perceived value
• Loyalty scheme: A customer management program that offers delayed or
immediate incremental rewards to customers for their cumulative patronage
• Customer club: A company-run membership organization that offers a range
of value-adding benefits exclusively to members
• Sales promotions
• Bonding
• Social bonds: Social bonds are found in positive interpersonal relationships
between people
• Structural bonds: Structural bonds are established when companies and
customers commit resources to a relationship (Can be Financial, Legal, Equity,
Knowledge-based, Technological, Process, Geographic, Multi-product, etc.)

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Your views

• When is customer retention not important?

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Context makes a difference

• Context makes a difference to customer retention in two ways. First,

there are some circumstances when customer acquisition makes
more, indeed the only, sense as a strategic goal. Second, customer
retention strategies will vary according to the environment in which
the company competes
• When launching a new product or opening up a new market a
company’s focus has to be on customer acquisition. In contexts where
there are one-off purchases such as funerals, or infrequent purchases
such as heart surgery, customer retention is subordinate to
acquisition

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Context makes a difference

• Contextual considerations that impact customer retention practices:

• Number of competitors – None or too many
• Corporate culture – Different strategic priorities
• Channel configuration – Too many intermediaries
• Purchasing practices – Customer not interested
• Ownership expectations – Different personal priorities
• Ethical concerns – Government sectors

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KPIs of customer retention programs

• Outcome-related KPIs: customer satisfaction, share of customer

purchases (share of wallet), raw customer retention rate, sales-
adjusted retention rate, profit-adjusted retention rate, customer
churn rate per product category, sales per region or channel, market
share, brand equity and ROI
• Cost-related KPIs: the cost to serve different customers
• Includes recurrent direct costs may include software subscriptions,
wages and salaries, space costs, parts costs, freight and travel costs

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KPIs of customer retention programs

• Process-related KPIs: These are KPIs that measure how effectively the
selected customer retention strategies are performing
• These might include measures related to service availability (number
of hours service technicians are available), speed (time elapsed
before issue is resolved to satisfaction of the customer),
responsiveness (time taken for an initial response to a service issue),
parts availability (number of times required parts are out-of-stock),
and accuracy (correct first-time diagnosis of an issue)

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The role of research in reducing churn
• Companies can reduce levels of customer churn by answering a
number of questions:
• Why are customers churning?
• Are there any lead indicators of impending defection?
• What can be done to address the root causes?
• Customers defect for all sort of reasons, not all of which can be
foreseen, prevented or managed by a company. For example, Susan
Keaveney identified eight causes of switching behaviors in the service
industries: price, inconvenience, core service failures, failed employee
responses to service failure, ethical problems, involuntary factors,
competitive issues and service encounter failures

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The role of research in reducing churn
• The second question attempts to find out if customers give any early
warning signals of impending defection. If these were identified the
company could take pre-emptive action. Signals might include the
following:
• Reduced RFM scores (recency–frequency–monetary value)
• Failure to log-in to a website
• Non-response to a carefully targeted offer
• Reduced levels of customer satisfaction
• Dissatisfaction with complaint handling
• Reduced share of customer spending
• Inbound calls for technical or product-related information
• Late payment of an invoice
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The role of research in reducing churn
• ….Signals might include the following:
• Querying an invoice
• Customer touchpoints are changed, e.g. store closes, change of website
address
• Customer change of address
• CRM practitioners may be able develop business rules to respond to
these events. For example, “if a customer has failed to log in for ten
days, send a reminder email. Root causes can be analyzed by
customer segment, channel, and product line. The 80:20 rule may be
applicable. In other words, it may be possible to eliminate 80% of the
causes of customer defections with relatively few changes and at
reasonable cost
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Strategies for customer development

• Customer development is the process of growing the value of

retained customers. Companies generally attempt to cross-sell and
up-sell products into the customer base while still having regard for
the satisfaction of the customer
• Cross-selling is selling additional products and/or services to an
existing customer
• Up-selling is selling higher priced or higher margin products and/or
services to an existing customer

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Strategies for customer development
• There are a number of CRM technologies that are useful for customer
development purposes
• Campaign management software is used to create up-sell and cross-sell
campaigns across single, multiple or all communication channels and track
their effectiveness, particularly in terms of sales and incremental margin
• Event-based marketing: Up-selling and cross-selling campaigns are often
associated with events. For example, a bank will cross-sell an investment
product to an existing customer if deposits in a savings account reach a trigger
point
• Data mining: Cross-sell and up-sell campaigns are often based on intelligent
data mining. Transactional histories record what customers have already
bought. Data mining can tell you the probability of a customer buying any
other products, based on their transactional history or profile

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Strategies for customer development
• There are a number of CRM technologies that are useful for customer
development purposes
• Customization: Cross-sell and up-sell offers can be customized at segment or unique
customer level, based upon the transactional history and profile of the target
• Channel integration: Customer development activities can and should be integrated
across channels
• Integrated marketing communication: CRM practitioners generally prefer that the
messages communicated to customers are consistent across all channels
• Marketing optimization software enables marketers to enjoy optimal returns from
up-sell and cross-sell campaigns across multiple channels and customer segments,
taking account of issues such as budget constraints, communication costs, contact
policies, customers’ transactional histories and propensities-to-buy

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Strategies for terminating customer relationships

• Relationships dissolve when one partner no longer views the

relationship as worth continuing investment
• Reasons?
• Dissolution of the relationship is not always an attractive option
because of contractual obligations, expectations of mutuality, word-
of-mouth risks, and network relationships

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Strategies for terminating customer relationships

• There are a number of strategies for managing relationships with

unprofitable customers:
• Make them profitable by raising prices or cutting cost-to-serve
• Unbundle the offer
• Respecify the product
• Reorganize sales, marketing and service departments
• Introduce ABC class service

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Strategies for terminating customer relationships

• Companies fall into three clusters in respect of the customer-sacking

behaviors:
• Hardliners take an active and rigorous stance in terminating unprofitable
relationships, including the regular evaluation of their customer portfolio
• Appeasers take a more cautious approach concerning the termination of
unprofitable relationships, due to strategic considerations such as not playing
customers into competitors’ hands
• The undecided cluster is reluctant to terminate unprofitable relationships,
mainly because they fear the costs of attracting new customers

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Your views

• Can you think of some “pain points” for your organization and how
they can be removed?

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