Customer Retention and Satisfaction Measurement

Customer Retention and Measurement of Satisfaction 1 0 In this chapter, you will learn how to 1. Define customer retention. 2. What is customer retention strategy?. 3. List the steps for establishing a customer- retention program. 4. Sources of...

Customer Retention and Measurement of Satisfaction 1 0 In this chapter, you will learn how to 1. Define customer retention. 2. What is customer retention strategy?. 3. List the steps for establishing a customer- retention program. 4. Sources of Information to Measure Customer Satisfaction Customer Retention: Customer retention involves ongoing efforts to satisfy and keep existing customers engaged in business. It encompasses a range of activities aimed at increasing repeat business and enhancing the profitability of current customers. A company’s success in attracting and retaining customers depends not only on its products or services but also on how it supports its existing customers, the value customers perceive from its solutions, and the reputation it builds in the marketplace. Although the significance of retaining current customers has long been recognized, few managers have implemented proactive strategies to do so. However, the modern trend emphasizes recognizing the value of loyal customers and fostering an environment that encourages continued business with them. Customer Retention: Cost of attracting vs. retaining customers: It’s well known that acquiring new customers is more expensive than keeping existing ones, yet many companies don’t have a formal plan for maintaining customer relationships. Lack of a structured approach: Some companies have no clear strategy for customer retention. They prioritize acquiring new customers over maintaining relationships with existing ones. Sales teams often focus on securing initial sales, leaving customer retention to the service department. Inconsistent follow-up: Companies may only check in with customers when business is slow, which does not create a strong customer-retention program. Well-developed retention plan: A successful customer retention strategy continuously meets current customer needs, explores new ones, and reminds them that they are valued. Importance of customer experience: Customers who feel valued and see a return on their investment are less likely to seek other options and develop strong loyalty to the company. Customers' Value External Customers: They are familiar with our products, services, and policies. They purchase frequently without needing a sales pitch. They are more open to new product offerings but expect consistent quality. Internal Customers: Internal customers, like colleagues or departments, are crucial to maintaining smooth business operations. It’s difficult to replace internal customers, so we must work to nurture those relationships. Unified internal customers can positively impact business success. Appreciating Long-term Customers: Long-term customers want to feel valued and appreciated for their loyalty. Offering special incentives, like discount coupons or exclusive events, helps keep them engaged. Customer Retention: Retention is based on showing appreciation and building long-term relationships. Treating customers as valued partners ("marrying" them) ensures their ongoing loyalty. Nonprofit Organizations: Nonprofits must prioritize customer retention to maintain donations and volunteer support. Regular acknowledgment and gratitude ensure continued commitment from supporters. The Financial Impact Many marketing programs in both large and small organizations tend to focus primarily on attracting new customers, often overlooking the needs and desires of their current clientele. However, this approach misses out on the substantial benefits of retaining and satisfying existing customers. To quantify the importance of customer retention, metrics such as churn rate, defection rate, and customer lifetime value are often used. By understanding churn, defection rates, and Customer Lifetime Value (CLV) , businesses can recognize the financial impact of losing customers and make informed decisions about investing in retention strategies. Even a small decrease in customer defections can lead to significant profit gains. Understanding Churn: The Financial Impact Churn Rate Churn, measures the % of customers who leave a business over a given period compared to the number of new customers gained during the same time. The formula for calculating churn is: 1. Churn = (Number of defections) / (Number of new customers) For example, if 210 customers discontinue using a service and 350 new customers are acquired in the same period, the churn rate would be 60%. 2. Defection Rate The defection rate indicates the % of customers who leave a business within a year. It can be calculated using the following formula: Defection rate = (Customers who left) / (Total customers) For instance, if a business started the year with 1,000 customers and ended with 350 fewer, the defection rate would be 35%. Customer Lifetime Value (CLV) Customer lifetime value is the net present value of the profits a customer brings to a business throughout their entire relationship. The formula for CLV is: CLV = (Yearly profit) × (Customer lifespan in years) For example, if an average customer generates $3,000 in profit annually and their average lifespan is 8.6 years, the CLV would be $25,800 (before considering net present value adjustments). Example Scenario: Imagine a small online subscription service, MoviePlus, which tracks its customer metrics at the end of each year. 1.Churn Rate Calculation: At the start of the year, MoviePlus had 500 customers. Over the year, 100 new customers joined, but 50 existing customers canceled their subscriptions. Practice Question: Calculate the churn rate for MoviePlus. 2.Defection Rate Calculation: MoviePlus began the year with 500 customers and ended with 450 (due to 50 cancellations). Practice Question: Calculate the defection rate for MoviePlus. 3.Customer Lifetime Value (CLV) Calculation: Each customer generates $100 in yearly profit. The average customer lifespan is 5 years. Practice Question: Calculate the customer lifetime value for MoviePlus. How to Tell If You Need to Improve Your Customer-Retention Programs If you do not have answers for all of the following questions, it is time to develop a customer-retention program within your company. 1.Are you measuring customer satisfaction? 2.What level of priority is being placed on customer satisfaction? 3.Do you measure quality standards and communicate results with management and staff? 4.Do you train and retrain customer service providers? 5.What is your level of employee turnover? 6.How much do you spend to keep current customers? 7.What is your cost for acquiring customers? 8.What is your customer-defection rate? 9.What do you do to get customers back? 10.Do you deliver on what you promised to your customers?  What is customer retention strategy? One of the biggest pitfalls for businesses across the globe is the thought of having a great product or service is enough as a strong customer retention strategy. KPMG is a global network of independent member firms offering audit, tax and advisory services. KPMG says, “The businesses that understand the importance of effective retention marketing, consciously invest in customer retention plans because they see it as the biggest revenue driver.” Customer retention strategy is defined as the ideas that an organization should implement to keep their customers stay with their brand. The key goal behind having a successful client retention plan is to help businesses to retain customers and how they contribute to the growth of the business. Development of a Customer-Retention Program Designing a successful customer-retention program requires focusing on both manageability and alignment with organizational goals. Building meaningful relationships and communicating that customers are valued beyond business transactions is essential. Key strategies often include follow-up phone calls, in- person visits, exclusive events, personalized greetings, reminder messages, coupons, newsletters, and occasionally going above and beyond in service. Customer retention demands proactive effort. Service providers must stay attuned to customer needs and be prepared to introduce new opportunities. Development of a Customer-Retention Program Understand Define Clear Design a Foster a Your Objectives Scalable Customer- Customer for the Retention Engagement Base and Program. Program. Culture Their Unique Needs. Set an Evaluation Timeline  Measurement of Satisfaction To provide exceptional customer service, it’s crucial to regularly assess how How did they start satisfied customers are with their engaging with our business? experiences. Customer satisfaction reflects how content customers feel Where are they located? following an interaction, and both their Where did they interact expectations and perceptions play a vital with us (especially if we have multiple sites)? role in this assessment. When did they conduct Collecting feedback often involves business with us? conducting surveys across a broad What aspects of their customer base. The survey questions experience stood out should be thoughtfully designed to yield positively? insightful and actionable information. How can we improve? To genuinely understand satisfaction, it’s essential to view the experience from the customer’s perspective. Surveys should be short and take only a few minutes to complete. If mailing surveys, providing prepaid postage can encourage responses, as customers may otherwise Measurement of Satisfaction To measure effectiveness accurately, it’s important to ask clear, purposeful questions across a diverse customer base to capture a broad range of perspectives. Explaining the purpose of your questions and expressing appreciation for customer feedback can reinforce that their input will help enhance service quality. Avoid asking questions about issues that won’t be addressed, as this can lead to frustration. An airline collects customer feedback on seat comfort, staff friendliness, and in-flight entertainment but avoids questions about airport parking, as it’s beyond their control. Sources of Information 1.Informal Surveys 2.Comment Cards 3.Verbal Feedback 4.Historical Data (Point of Sale 5.Sales Data 6.Corporate Surveys 7.Internal Discussions 8.Focus Groups 9.Toll-Free Numbers 10.Customer Intelligence  Sources of Information Source Type of Information Description Gathered Informal Surveys Qualitative Feedback General customer preferences, likes, and dislikes without statistical accuracy. Comment Cards Immediate, Qualitative Brief, spontaneous reactions during the experience, often with limited detail. Feedback Verbal Feedback Qualitative, Real-Time Direct customer experiences and opinions captured informally. Feedback Historical Data (Point of Quantitative Behavioral Objective data on purchase patterns, frequency, and transaction histories. Sale) Data Sales Data Quantitative Sales Trends Purchase volume and frequency changes over time, reflecting current satisfaction and loyalty. Corporate Surveys Detailed Quantitative and Statistically measurable responses on products and services, including ratings or Qualitative Data open comments. Internal Discussions Subjective Qualitative Observations from internal staff, highlighting common issues or recurring Feedback feedback from customers. Focus Groups In-Depth Qualitative Detailed feedback on products/services, with group dynamics and suggestions for Insights improvement. Toll-Free Numbers Real-Time Qualitative Customer questions, concerns, or observations recorded as they happen, Feedback aiding in issue resolution. Customer Intelligence Comprehensive Aggregated data on profiles, preferences, and behavior, allowing for trend analysis Quantitative and and predictive insights. Qualitative Data Advantages of Measuring Effectiveness Assessing the effectiveness of a company or department offers numerous benefits. This process uncovers weaknesses, allowing for timely adjustments and improvements. It also helps identify new customer needs, enabling the creation of programs tailored to current demands. Customers often won’t share their ideas or issues unless prompted, which means their valuable insights could go unnoticed. Harvard Business Review reports that a 5% increase in customer retention can lead to profit increases between 25% and 125%. One valuable outcome of measuring effectiveness is discovering what’s working well. Although customers may be highly satisfied, if their feedback isn’t actively sought, changes to offerings could lead to dissatisfaction. Why Surveys Do Not Always Reflect Reality While the survey and comment cards are the most common methods of measurement, they do necessarily reflect a real picture of customer satisfaction. Frequently, the primary customers who take the initiative to respond to surveys is those customers who are dissatisfied with their experiences or those customers who hope to gain from their comments. Satisfied customers may not take the time to express their satisfaction and therefore may not be included in the overall picture of satisfaction. Survey research only makes sense if and only if people honestly report their beliefs and preferences. The value of survey research is directly linked to this fundamental assumption. It’s a fact of life, however, that we have the ability to misrepresent ourselves. Because people are free to misrepresent themselves, it raises the question of whether surveys can provide an accurate view about what people truly believe and value. Sadly, there’s solid evidence that surveys are unreliable Retention Strategy Examples  Customer retention key strategies Let us discuss the key strategies on how to retain customers and convert them as brand advocates. 1.Make customer experience (CX) a strategic priority Focus : 2. Delight your customers always 3. Create well-tailored customer retention program 4. Map your customer journey 5. Respond to customer issues instantly 6. Deliver real time customer engagement Approach 7. Implement customer feedback judiciously 8. Create interactive content for educating customers Customer Retention Strategies Of Best Brands Starbucks – Loyalty Program Strategy: Enhanced Loyalty Program Key Features: Stars per dollar, mobile payments, birthday rewards, pre-ordering. Tiers: Green and Gold with increasing rewards for spending. Impact: Higher customer spend and loyalty through tiered rewards and in-app preloaded balances. Insight: Personalized rewards based on spending habits encourage brand loyalty. Amazon – Prime Membership Strategy: Privilege-Based Retention Key Features: Free shipping, exclusive streaming services, priority access to Amazon products. Reach: Over 80 million Prime members in the U.S. Impact: Impulsive purchases due to fast delivery and bundled benefits. Insight: Prime is a privilege program, reinforcing retention Customer Retention Strategies Of Best Brands Coca-Cola – Customer Connection Strategy: Experiential and Flexible Campaigns Campaign Example: "Friendly Twist" for university bonding. Innovation: Adapted products like Coke Zero and Coke Life for health-conscious customers. Impact: Consistent customer connection and brand flexibility sustain loyalty. Insight: Staying relevant and adapting to customer concerns is crucial for long-term retention. Hilton – Personalized Hospitality Strategy: Targeted Customer Service and Loyalty Features: Rewards specific to customer activity, targeted offers. Personal Touch: Personalized emails and status updates. Impact: Personalized service and rewards program boost repeat visits. Customer retention strategies of best brands Brand #1: Starbucks’ Customer Loyalty Program A study said that 77% of customers participate in retail loyalty programs. The American coffeehouse chain Starbucks, with more than 27,000 outlets around the world, has case studies revolving around its loyalty programs. On April 12, 2016, Starbucks redesigned their loyalty program ‘Starbucks Rewards’ to the high spenders. 2 stars per $1 spent, Pay by phone, Free reward on birthdays, Facility to order in advance, Free in-store refills, Exclusive events and offers for members. In the earlier program, people were rewarded for each visit, meaning there wasn’t any difference between a low- spender and high-spender in terms of rewards. With the new system, the more they spend, the more stars they earn. There are tiers like Green and Gold for customers based on their usage with various benefits for each of them. What’s So Special About Starbucks’ Rewards Program? A customer loyalty program such as Starbucks’ would also enable them to collect more data about their customers which means that they can use it to serve them better. They also incentivized the high- spenders, making them feel valued for spending their money with Starbucks. A lot of people downloaded the app and pre-loaded the app with money. Apparently, people are willing to spend more when they have in-app Brand #2: Amazon’s Prime Memberships The online retail giant’s program might look like just another retention program that has deals and faster shipping but there are also a lot of additional benefits included in it. Apart from the promise of faster delivery, it also gives its customers access to streaming video services, music, ebooks, free delivery and a plethora of other Amazon-specific products. More than 64% of households across the US have an Amazon Prime membership. That would make up to 80 million Prime members in the US alone. Ensuring that Nothing is Lacking Using Data to Serve Better Amazon leaves all of its competitors A subscriber gets free shipping and when struggling behind because of the you reduce the number of delivery days in deals, smooth user-interface, a purchase, it would be impossible for a delivery speed, product customer to not feel valued. It also availability. promotes impulsive buying as a user knows that the product would be in their hands This is why Amazon keeps winning within two days. One cannot call Amazon Prime a customer loyalty program, it is and as a result, more people would more like a privilege program. make the subscription to Amazon Prime for its additional benefits thus strengthening the relationship with the customer. Brand #3: Coca-Cola Retaining Customers Over the Years If there is one brand that would remain consistently among of the top brands the world has ever seen, it has got to be Coca-Cola. They keep innovating when it comes to their strategy for connecting with their customers. The 135-year old company continuously creates amazing experiences for its customers through its ads, events, or through product interaction. Experiential Campaigns that Bring Customers Together Coca-Cola had an amazing run with its advertising Coke’s Ability to be Flexible Amid Concerns campaigns over the The fact that Coca-Cola has maintained its image despite years, one of its health concerns, economic changes throughout the campaign on college world, alternating consumption patterns and much was its “Friendly Twist” more is a win in itself. When customers grew bottle which can only be concerned about sugar consumption, it developed opened with the help of Coke Zero and Coke Life, both of which were well- another person. The appreciated by the health conscious, this ability to be objective of this was to flexible ensures that the brand never loses its crown. make first-year students To achieve all of this, Coca-Cola has spent millions on at a university in extensive marketing and stays well connected with Colombia bond. its targeted customers. This is why there are so many brand advocates for Coke.  Brand #5: Hilton’s Dogged Pursuit to Keep its Customers Happy All big hospitality brands are known for keeping their customers fully satisfied and at Hilton, even more so. Even if you are not a member of its rewards program, you will still get the best treatment that is humanly possible. Targeted Service Increases Effectiveness Their rewards system is specific to the customer activity and not just directed at anybody with a card. The offers depend on factors like Reminding Customers Of What how often have they stayed, they Stand to Gain demographics, partner payment Honors also send its guests personalized emails cards the guest has used and in response to their activities. This alerts them of other behavior patterns. A the many perks including incentive points. The member can log in to the Honors personal touch means that it encourages site to check their status at any customer loyalty and promotes repeat business. point of time including hotel The customer is repeatedly told that being an transaction data, redeemable Honors member is replete with complimentary points, any special offers, eligible bonus hotel stays, surprise upgrades and gives hotel rewards and much more. airlines miles as well. Such a level of communication and service is only bound to increase the number of Honors members. Conclusion Each brand showcases unique retention tactics tailored to customer needs. Key Takeaways: Personalization: Loyalty programs that adapt to individual customer behaviors increase satisfaction. Added Value: Privilege memberships and exclusive benefits deepen loyalty. Flexibility: Adapting to customer concerns (e.g., health, preferences) maintains brand relevance. Consistency: Regular and personalized engagement with customers drives brand advocacy.