The role of customer retention in the marketing strategy and marketing planning process for a business
Marketing concepts have witnessed a sea change in the new global economy. “The new economy is based on the Digital Revolution and the management of information, while the old economy was based on the Industrial Revolution and on managing manufacturing industries” (Kotler 3). Managing the old economy was not that much difficult. However, in the changing scenario, success of a business depends on the marketing management. In the new WTO regime, global economy has replaced the traditional economy, which focused only on managing the manufacturing industry.
The digital revolution has set a new challenge both for the consumers and businesses. It has become relatively easier for the buyers to get complete information about the products available with different companies and compare between them so that they can make a right choice. For this, they don’t need to visit the stores or the marketplace. Only a few clicks on the Internet will resolve all their queries. They can also browse through the websites to find out the best deals available in the market.
Marketing involves a set of benefits, actions, programs and products defined by the company to satisfy the needs of the customers. All the marketing activities need to be carried out in a planned and effective manner. Profitable success of a company depends on its ability to understand the marketplace and take necessary steps to cater to the growing demands. It holds the key to achieving its organizational goals and delivering high quality products and services to the target customers. Customer retention becomes very much essential as losing the customers may prove costly for the company. When one customer has a bad experience with your company, they will tell their friends and colleagues about the poor service, and they will tell more people.
It is very necessary to understand the customers’ needs, as all the marketing research will go in vain if the customer is not satisfied. Understanding customers’ needs and wants sometimes becomes very difficult. If the customers are not fully aware of their requirements or use vague terms to specify their requirements, then it comes to the marketers to interpret them correctly and deliver the products or services accordingly. In such circumstances three types of marketing are needed: responsive marketing, anticipative marketing and creative marketing.
“A responsive marketer is fit enough to handle the situations where the customers specify their requirements very precisely. An anticipative marketer analyses and tries to find out the needs customers may have in the near future. A creative marketer makes research on the market and develops solutions to which the potential customers might respond positively” (Kotler 20-21).
The Customer Concept
Today most of the companies have realized that the focus of the marketing strategy should be on the customers. This realization made the companies move from the marketing concept to the customer concept. In today’s competitive market, it has become essential for them to focus on the customers on individual basis. “The companies are now making separate offers and services to individual customer after making a complete research on their past transactions, demographic positions and distribution. Customer concept is achieving profitable sales and satisfactory returns on investment for the company by identifying, anticipating and satisfying customer needs and desires” (Lazer 47). They hope to achieve profitable growth by building customer loyalty and confidence. Besides attracting the new customers, retaining the existing customers has become the main objective of the customer concept. To retain the customers it is very important that customers are managed based on their individual needs. As these needs keep changing, company’s products and services must adapt themselves to the changing patterns. Otherwise, there is a risk of losing the customers to another company that meets their new requirements. Before discussing the need for retaining the customers, we have to discuss the various aspects attached to it.
Customer Value and Satisfaction
In the new global economy, customers have a variety of option to choose from. It is very important to understand how they make a final choice among a vast array of products and brands. They have the ability to estimate which offer will deliver the highest value. Based on their resources, expectations and knowledge, they decide whether the offer lives up to the value expectation or not. “The customer evaluates the products on the parameters of reliability, durability, performance and cost. These are the values, which becomes the deciding factors on a transaction” (McCalley 81).
If a customer is satisfied with the products and services, he will definitely come back with more business. Also the customer will act as a channel to pass the brand name of the company to other potential customers. Customer’s feedback will help the company to enhance the trust in the market. Customer satisfaction is very crucial for any company as that helps in bringing more businesses. “If the performance of the product falls short of expectations, the customer is dissatisfied. If it matches the expectation, the customer is satisfied” (Kotler 61). But often we notice that the link between customer satisfaction and customer loyalty is not strong enough. There are levels of satisfaction. If the satisfaction level is not high, the customer is unlikely to come back. The satisfaction of the customer depends on the expectations. If the company sets high expectations for the customers, it has to meet their expectations, failing which customer will be highly disappointed with the outcome. Most of the successful companies are raising expectations with the aim of total customer satisfaction.
“Xerox is one of such companies who believe in raising the expectations as well as delivering quality services. They aim for the total customer satisfaction. Xerox guarantees ‘total satisfaction’ to its customers and announced that it would replace all the faulty equipments within a period of three years of purchase. Such an announcement is enough to convince the customers that their expectations will be met if they buy product from Xerox” (Kotler 69).
Attracting new customers has been a part of marketing strategy for years. A lot of time and money is spent on wooing customers as now they have become smarter and consider the cost-effective factor very much. They are very hard to convince and demand more. They are not ready to compromise on the quality of the products as there are many other companies who offer them equal or better services. Companies that want to expand their businesses with more profits, spend considerable time and resources searching for new customers. They develop advertisements and place them in media to reach out new customers. They use a number of mediums such as phone calls and emails to the prospective customers. Their sales people participate in trade shows to display the products and services offered by the companies.
The need for Customer Retention
Customer defection is a very common phenomenon in today’s market. To check the defection rate, companies need to take a number of measures that will target the customers and satisfy their needs. “Retaining the customer base is critical to the success of the company. If the company does not give customers some good reasons to stay, its competitors will give them a reason to leave. It is less expensive to maintain the existing customer base and sell more services to them than seeking new customers” (Kotler 70). The wise move of the companies would be to measure customer satisfaction regularly as it is a key to customer retention. The focus of the company always should be on total customer satisfaction. A highly satisfied customer stays longer with the company. He buys more products and upgrades existing ones because of the trust he has on the company.
The loyal customers always talk in company’s favor in their workplace and social gatherings. We can say that they are the brand ambassadors of the company. As they are satisfied with the products and services offered by the company, they pay attention to other brands and their offers. They believe in better quality and services. As long as their expectations are met, they remain loyal to the company and do not switch loyalty.
“For years, most marketing theory and concepts focused on attracting new customers and companies have adopted them. Traditionally, the objective of marketing has been making sales for more profit. Building a relationship with the customers was never considered as important. As a result, a large number of customers switched their companies in quest of better deals” (Proctor 61).
Now companies have started focusing on their customers and working out strategies to meet their expectations. Companies are launching special deals and offers for the existing customers to build the trust among them. Customers should be convinced that even if the product becomes faulty, company would replace them or repair them without any hitch. In most of the cases, it has been seen that customers do not agree to anything less than a replacement.
Some people believe that if the company is receiving less number of complaints, it has a higher customer satisfaction rate. However, this is a misconception. Most of the dissatisfied customers never complain. They just abandon the company and they are aware of the less helpful complaint service offered by many companies. It is very necessary for the companies to simplify the complaint procedure to make it easy for the customers to complain. It is often noticed that ideas on improvement come from customers’ complaints.
A free complaint service is always better than the paid complaint service. It will convince the customer that company really means business and it is not using extortionist methods to rob them of money. The company must respond quickly and positively to the complaints. A majority of the customers, who make the complaints, will stay with the company if their complaints are handled effectively. If their complaint is resolved quickly, it will increase their faith in the company. They will tell others about the good and quick service they have received.
The Objectives of Customer Retention
Marketing managers must identify the reasons behind customer defection. Effective retention programs are essential to understand the problems of the customers and provide better solutions. An analysis on the marketing trends, pricing records and customer survey results will provide an insight into the real reason behind customer defection. “The importance of satisfying the customers cannot be ignored. Satisfied customers constitute the company’s relationship capital. 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” (Kotler 75).
“The importance of customer retention can be measured from the fact that acquiring new customers can cost five times more than satisfying and retaining existing customers” (McCalley 86). Most of the companies lose a substantial number of their customers each year. In this context, customer retention becomes the primary concern. Also, the quality of the products and services of the company will improve if they focus on the needs of customers.
Customer Relationship Management
While making marketing strategies for customer retention, it is necessary to understand the need for customer relationship management. In the competitive market, to sustain business growth, companies should develop strategies that are customer focused and customer driven. We will appreciate the fact that a customer does not depend on our business but our business depends on the customer. This idea drives us to build a strong relationship with the customers for the successful implementation of business plans. Customer relationship management is the gateway to satisfy the customers’ needs and retain them.
To form a strong relationship with the customers, companies need to follow the basics mentioned below:
? Participation in planning and managing the customer satisfaction and retention process.
? Integrate the feedback and suggestion of the customers in business decisions.
? Creating superior quality products and services for the target market.
? Allow the customers to access the database of information on customer needs, preferences, contacts, purchase information and satisfaction.
? Simply the complaint procedure so that customers can reach the concerned department to air their feedbacks or grievances.
? Announce reward programs time to time to provide financial benefits to the customers.
As customer retention plays a major role in the marketing strategy in today’s scenario, several factors should be taken into account to achieve the goal of customer satisfaction. Many companies believe in extending financial benefits to the customers as part of the recognition programs. There are two types of financial benefits offered by the companies to their customers. These are: Frequency programs and Club marketing programs. Frequency programs are designed to provide reward the customers who are frequent buyers and spend substantial amount to buy products and services from the company. Companies must manage the frequency programs efficiently to avoid any financial burden on them. These programs come in the form of membership cards that offer good discounts on particular items.
Member customers can avail such offers, which will make them to remain loyal to the company. Apart from the frequency programs, many companies also believe in creating club membership programs to reward their existing customers. Club membership can be open to everyone who purchases a product or it can be limited to those willing to pay a nominal fee. These clubs serve the customers who are responsible for the largest portion of business. Club membership programs are created to bring customers closer to the company. “Club members get opportunity to learn more about the products and services. They get discounts; participate in special events and share ideas with other members” (Kotler 78).
Marketing strategy demands to create structural ties with the customers. The following steps are helpful on this regard:
? The companies should create long-term contracts with some special subscription offers. It will help them to maintain a strong relationship with the customers.
? Offering lower prices to the customers who want regular supply of particular products will contribute positively to their satisfaction index.
? Some extended offers with the products come as a pleasant surprise to the customers. Such delighting offers will be helpful in retaining them.
Differentiating between the Customers
Companies make marketing strategies to understand the needs of the customers, fulfilling their expectations and retaining them in the business. However, it is necessary to differentiate between the customers. It is not possible to please all the customers. There are customers who are the ‘core customers’ or ‘target customers’ and form the integral part of the business. There are also some customers who have a casual approach and are not profitable from company’s point of view. The earlier perception, ‘more customers mean more profit for the company’ has become the theme of the past. Companies such as Staples and Best Buy believe that fewer customers may bring profitability, provided the differentiation between the customers is done in a proper way.
Staples CEO, Ronald Sargent said, “We found that 67% of our customers accounted for 90% of profits. Rather than continue to pander to everybody, we decided to focus on the 67% primarily small-business or home-office power users.” It may be a new idea in the marketing strategy to abandon the customers who produce no value to the company. However, in future, we may see more companies adopting such policy.
Examples of Real Companies, which have seen major roles of Customer Retention in their marketing strategy (1998 – 2005)
Dell is one of the few companies who have seen the role of customer retention in their marketing strategy. Dell is the leading computer systems company in the world. Dell has two types of customers: consumers and corporate consumers. The normal consumer buys products from Dell because of price. However, corporate consumers need a long-lasting relationship with the company. Dell has acknowledged the importance of retaining its existing customers and used its resources in building a strong relationship with the consumers. Corporate consumers contribute 80 percent of Dell’s business. The company manages its corporate accounts with a high-powered sales team. It has built some customized web pages, which are special business-oriented parts of the Dell Web site. These web pages allow consumers to interact with Dell and receive all the necessary helps instantly.
A few years ago, EarthLink, a leading Internet service provider witnessed a sharp decline in its customer base. It seemed that customers are deserting the company to move to other service providers. However, the company made a careful market research and decided to improve its customer support channel to help resolve their problems.
According to the company sources, customer defection rate has now decreased to a great extent. Company President Mike McQuary said, “EarthLink’s strong customer support helped the company retain customers. Its support center received 5.2 million phone calls or emails during the previous quarter, and the average wait time on the phone was two minutes.”
In the context of the importance of customer retention in marketing strategies for a business, we can take the example of Harley-Davidson. To retain the customers, it announced a number of benefits. The world-famous motorcycle company sponsors the Harley Owners Group (H.O.G.), which now numbers 600,000 members in over 1,200 chapters. The first-time buyer of a Harley-Davidson motorcycle gets a free one-year membership. H.O.G. benefits include a magazine called Hog Tales, a touring handbook, emergency road service, a specially designed insurance program, theft reward service, discount hotel rates, and a Fly & Ride program enabling members to rent Harleys while on vacation. The company also maintains an extensive Web site devoted to H.O.G., which includes information on club chapters, events, and a special members-only section.
The business strategy of American Online is different from that of other companies. Concerned over the tough competition in the market, AOL has decided to reform its customer service procedures to retain its customers. Earlier it had asked its customer service representatives to meet a minimum quota for customer retention. The employees used to get a huge bonus by retaining the customers. Now AOL has decided to deal with the customers directly through simplified complaint review services. Under the new program, customer service representatives will get benefits by handling the customers’ complaints effectively. By providing quality services, it has successfully retained its customers.
O2 is one of the leading telecom service providers in the UK. It develops mobile phones and provides mobile phone services to its customers. Under threat from its strong rivals, O2 has taken a series of measures to retain its existing customers. To provide the next generation technology to its customer, it rolled out the 3G networks in the UK. In the first quarter of 2005, it launched O2 Active, the simple-to-use portal for news, information and downloads. This feature is available on the handsets that operate on O2 network. To retain its valued customers, it launched innovative new services and loyalty programs. It also significantly invested in customer service and CRM (Customer Relationship Management). For existing customers, it announced special loyalty bonus if they renew their contract with O2. By focusing on customer retention, O2 has been successful in reducing the customer defection rate. It helped the company to increase its subscribers in the market and establish O2 as a brand name.
We can conclude that marketing is an art of attracting and retaining profitable customers who are in the best interest of the company. Whenever the companies formulate marketing strategies or marketing plans, customer retention plays a bigger role. Marketing managers face an uphill task in differentiating between the customers, identifying customers’ demands and taking necessary measures to win their loyalty. There are several companies who understand the importance of customer retention and work towards achieving this target.
In the new age economy, a careful and guided approach to marketing is crucial from the growth perspective. Without addressing the basic concern, no company will be able to fulfill its obligations towards the customers. The first step is of identifying the valuable clients. Without identifying the profitable clients, companies will sell their products to everyone and that will result in a situation where no clients get what they really want. Companies should identify the segments on which they can focus to satisfy their customers. Segmentation and loyalty drivers will help companies to understand the needs and wants of their customers. Companies must also understand the customers from a profitability perspective. There is a need to develop a customer loyalty strategy to analyze the positive impact of the customer retention on business. It’s time to accept the fact that customers drive the business, not the companies.
Customer relationship is always handled by several departments. Proper coordination between all the departments in integrating data is very much crucial to success. Internal staff should be well-trained and well-equipped to address the concern of the customers. Companies, which function through channel partners should establish a strong relationship with the end users and channel partners. This is very crucial for the successful implementation of customer relationship management programs.
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