Customer Retention Strategies PDF

3. Customer Retention Pathways to grow. Attract new customers: Implement marketing strategies to reach potential customers and draw them to your products or services. This could involve targeted advertising, promotions, or partnerships. Encourage existing cust...

3. Customer Retention Pathways to grow. Attract new customers: Implement marketing strategies to reach potential customers and draw them to your products or services. This could involve targeted advertising, promotions, or partnerships. Encourage existing customers to purchase more units of service: Offer incentives or rewards for repeat purchases or larger orders. This could include loyalty programs, discounts for bulk purchases, or upselling additional services. Encourage existing customers to purchase higher value services: Showcase the benefits of premium or upgraded services to existing customers. This could involve highlighting the added value and luxury of higher-priced options, such as staying in a better class of hotel. Reduce turnover or churn: Identify reasons why desirable customers might defect to competitors and take steps to address these issues. This could involve improving customer service, enhancing product features, or offering competitive pricing. Regain lost customers: Reach out to customers who have previously purchased from your business but have since stopped. Offer incentives, personalized offers, or apologies for any past issues to encourage them to return. Terminate unprofitable customers: Evaluate the profitability of each customer and consider ending relationships with those who consistently generate low revenue or high costs. This could free up resources to focus on more lucrative opportunities. CRM and improving the customer lifetime value Leaky bucket analogy The analogy is designed to highlight that the firm has two approaches it can take in order to maximize the amount of water in the bucket (that is, the size of the customer base). These two approaches are, increasing the water flow into the bucket – in other words, increasing the number of new customers acquired. Or it can look to reduce or plug some of the holes in the bucket to reduce the water loss – in other words, concentrating on customer retention. Offensive versus defensive strategies Offensive marketing strategies emphasise on attracting new customers Defensive marketing strategies emphasise on retaining the existing customers How profitable are the loyal customers 80/20 rule- Typically 20% of customers generate approximately 80% revenue Long term customers are more knowledgeable and price sensitive Customers resent firms that try to profit excessively from their loyalty Long life customers are costly to serve Short-life customers become unprofitable if invested in Higher average prices are paid by short-life customers Customer profitability tiers The Platinum tire describes, ▪ the company’s most profitable customers ▪ typically, those who are heavy users of the product.  ▪ They are not overly price sensitive. ▪ are willing to invest in and try new offerings, and ▪ are committed customers of the firm. The gold tire differs from the platinum tire, ▪ in that profitability levels are not as high ▪ perhaps wants price discounts that limit the margins or as not as loyal as platinum Iron tire contains, ▪ essential customers who provide the volume needed to utilize the firm’s capacity ▪ but their spending levels, loyalty and profitability are not substantial enough for special treatment The lead tire consists , ▪ customers who are costing the company money. ▪ They demand more attention than, are problematic customers Framework for customer retention Build a foundation for customer retention Segment market to match customer needs with firm profile Manage customer data base via effective tiring of services Deliver value and satisfaction to all customers Develop trust in the brand Install effective complaints handling and recovery procedures Three key strategies for customer retention 1. Create loyalty bonds 2. Build switching barriers 3. Reduce churn drivers 1. Create loyalty bonds Confidence benefits-Feeling trust or confidence in the services provider, along with a sense of reduced anxiety and comfort in knowing what to expect Social benefits-Regular customers often develop a social relationship with the services providers such as being recognized, feel welcome and develop personal rapport with the service personnel Special treatment benefits-Getting the benefit of the doubt, special deals, preferential treatments Reward based benfits-Rewards based on frequency of purchase, value of the purchase or combination of both. Customer engagement-Confidence in the brand, brand integrity, pride in the brand, passion for the brand Build higher level bonds Social bonds versus structural bonds Social bonds Many services involve a period of interpersonal interaction between SP and SR, which is important to develop long-term customer relationships. The trust developed lead to social bonds or friendships that lead to higher level of commitment by both parties. While the customer is involved in the commercial relationship they want it feel like a personal one. e.g: customer like to be recognized, use customers name is crucial to make them feel that they are in valued relationships structural bonds Structural bonds are mostly seen in B2B setting, aiming to stimulate loyalty through structural relationships between the provider and the customer e.g: Joint investments in projects, sharing information Structural bonds are created in B2C environment too e.g: 2. Build switching barriers Economic switching barriers Financial penalty due to switching Psychological switching barriers Many customers are reluctant to leave the SP due to the personal side of the relationship they find it stressful to leave the services provider. 3. Reduce churn drivers Conduct churn diagnostics: Analyze customer data to identify patterns and trends associated with churn. Look for common characteristics or behaviors among customers who have stopped using your product or service. Understand key defection triggers: Determine the primary reasons why customers are leaving. This could include factors such as poor customer service, pricing issues, product dissatisfaction, or competition. Address churn drivers: Once you've identified the root causes of churn, take action to address them. This might involve improving customer service processes, adjusting pricing strategies, enhancing product features, or differentiating your offering from competitors. Develop retention strategies: Implement targeted retention strategies to keep existing customers engaged and satisfied. This could include personalized communication, loyalty programs, exclusive offers, or proactive customer support.