Aug 31, 2009

Customer Retention 101

Introducing Customer Retention

· Do you know who your core customers are? More importantly can you identify the ones that shop around, taking advantage of every possible switching offer?

· C-level executives are more focused on tracking customer metrics in the recent times and a key measure is Customer Retention (CR) which is the “probability of a customer being ‘alive’ or repeat buying from a firm.”

As winning new customers gets harder, companies are turning to their knowledge of existing customers to encourage their loyalty. “Stick with who you know” (published at New Media Age) cites the following reasons to treat your long term customers right:

- Long term customers tend to be less likely to switch and also tend to be less price sensitive and may initiate free word of mouth promotions and referrals.

- Long term customers are more likely to purchase ancillary products and high margin supplemental products.

- Moreover, long term customers tend to be satisfied with their relationship with the company and are less likely to switch to competitors thus they have power to make market entry or competitors' market share gains difficult.

Value of Customer Retention in an Economic Downturn / Financial Crisis

· Current economic environment once again puts customer satisfaction under the spotlight and CR is a quantifiable way to track it.

“Focus on the customer and win in the downturn” published on Financial Times praises optimizing efforts on customer facing activities:

“Businesses currently have the opportunity to become more strategic – and more profitable – by applying their resources in a more efficient and focused manner. Serving and developing the right kind of customer relationships and experiences instead of arbitrarily cutting spending on customer-facing activities is the key…”

Customer Retention Modeling

· What are the next steps after you decide to hold on to your core customers?

Another Financial Times article, “Customer management: it’s still about the data”, suggests customer data is the place to start:

“Data management is a continuous process and requires constant attention. But it doesn’t have to happen overnight. Start today...” Immediate actions that different organizations try to take are:

- Identify and understand key groups of your costumers,

- Know what to do with your data and integrate the sources effectively

- Turn your findings into actions

- Reach your customers with the right message at the right time

For Further Reading

Anjali Cordeiro (2009, June 23). “In Tough Times, Companies Coddle Their Regulars.” Wall Street Journal (Eastern Edition), p. B.4

Gwendolyn Bounds (2009, May 11). Insight Exchange: “Top entrepreneurs talk about how to keep your customers, and find opportunities, in tough economic times.” Wall Street Journal (Eastern Edition), p. R.2

Janet Adamy (2008, December 5). Corporate News: “Starbucks Moves to Cut Costs, Retain Customers.” Wall Street Journal (Eastern Edition), p. B.3