CRM ASSIGNMENT

CUSTOMER RETENTION STRATEGIES

Customer Retention is the activity that a selling organization undertakes in order to reduce customer defections. A companys ability to attract and retain new customers, is not only related to its product or services, but strongly related to the way it services its existing customers and the reputation it creates within and across the marketplace. Customer retention is more than giving the customer what they expect, its about exceeding their expectations so that they become loyal advocates for your brand. Creating customer loyalty puts customer value rather than maximizing profits and shareholder value at the center of business strategy. The key differentiator in a competitive environment is more often than not the delivery of a consistently high standard of customer service. The customer retention process is as follows:

Customer acquisition

Customer retention

Customer loyalty

Brand advocacy

The customer retention process actually begins during acquisition, which creates customer expectations, including perceptions of product value and uniqueness. Initial product usage determines whether these expectations are met. Then other factors, such as ease of exit, ease of purchase, and customer service, come into play. Together these factors affect long-term customer behavior and determine the relationship between seller and buyer. As brands become increasingly commoditized and competition fiercer, keeping and expanding customer relationships depends on the ability to create loyalty and customer retention by delivering a customer experience tailored to changing customer needs and values and consistent with the brand promise.

To survive and even thrive in todays difficult economic environment, many organizations should take a fresh look at their strategies and methods for retaining customersand if necessary renew their commitment to customer centricity:
Begin

at the BeginningThe factors that create and influence customer loyalty

begin to take effect even before a customer becomes a customer. The relationship a customer develops with the brand during the acquisition stage strongly
Recognize

influences

customer

value

and

retention.

Every Kind of LoyaltyLoyalty is not necessarily an emotional

connection to the brand. True brand evangelistsor even potential evangelistsare at best rare and possibly non-existent. Companies need to recognize, develop and manage more than one kind of customer loyalty: conditional, emotional and passiveusing more than one kind of strategy.
View

the Entire Value ChainThird-party channels and routes to market also

affect customer loyaltyand can destroy unless they are managed effectively. Analysis and decisions concerning such factors as offers, sales incentives, pricing, service deliveryall dimensions of the customer experienceshould include all the trading partners who contribute to the customer experience.
Manage

ComplexityProducts, service bundles, channelsthese and many

other factors have grown exponentially more complex in recent years, making customer loyalty more complex to manage as well. Providers must retain the ability to react quickly to changing customer needs and market conditions. Know What to Look ForMost companies know a lot about their customers, and comparatively little about the factors influencing acquisition and retention. Achieving high performance in customer retention means aligning activities throughout the relationship lifecycleincluding acquisitionand using

econometric and return-on-investment analytics to study and maximize conversion rates and other customer behaviors across channels and throughout the lifecycle.

 Know

What to MeasureCompanies often measure the wrong things when

trying to measure customer profitability and loyaltyloyalty indicators are far more involved than customer satisfaction scores. Establishing and managing cross-functional key performance indicators throughout the customer lifecycle helps prevent the loss of current and potential customer value. TYPES OF LOYALTY Different customers have different buying habits; It is, in many ways, the basis for our desire to understand our clientele; understanding individuals buying habits helps us be better marketers, better salespeople and better retailers overall. Our buying habits as consumers are determined first by our circumstances (e.g. geographic location, family situation, financial status, lifestyle) and second, by our relationship with the retailer and its products. This relationship or relative attachment is, in turn, influenced by our general need for the retailers goods or services, the opinions of our friends and family and by our past experiences with the product or the retailer.

The four distinct types of customer loyalty are: 1. No Loyalty: For varying reasons, some customers do not develop loyalty to certain products or services. For example, a manager of a travel agency who goes anywhere in town to get a haircut, so long as it costs him INR50 or less and he doesnt have to wait. He rarely goes to the same place two consecutive times. To him, a haircut is a haircut regardless of where he receives it. His low

attachment toward hair services combined with low repeat patronage signifies an absence of loyalty. Generally speaking, businesses should avoid targeting noloyalty buyers because they will never be loyal customers; they add little to the financial strength of the business. The challenge is to avoid targeting as many of these people as possible in favor of customers whose loyalty can be developed. 2. Inertia Loyalty: A low level of attachment coupled with high repeat purchase produces inertia loyalty. This customer buys out of habit. Its the because weve always used it or because its convenient type of purchase. In other words, non attitudinal, situational factors are the primary reason for buying. This buyer feels some degree of satisfaction with the company, or at least no real dissatisfaction. This loyalty is most typical for frequently bought products. Dry cleaning from the store down the block and shoe repair from the nearby cobbler are some examples of such a type of loyalty. This buyer is ripe for a competitors product that can demonstrate a visible benefit to switching. It is possible to turn inertia loyalty into a higher form of loyalty by actively courting the customer and increasing the positive differentiation he or she perceives about your product or service compared to others available. For example, a dry cleaner that offers home delivery or extended hours could make its customers aware of this fact as a way to differentiate its service quality from that of competitors. 3. Latent Loyalty: A high relative attitude combined with low repeat purchase signifies latent loyalty. If a customer has latent loyalty, situational effects rather than attitudinal influences determine repeat purchase. E g. a person is a big fan of Chinese food and has a favorite Chinese restaurant in his neighborhood. His wife, however, is less fond of Oriental food, and so despite the persons loyalty he patronizes the Chinese restaurant only on occasion and generally they go to restaurants they both enjoy. By understanding situational factors that contribute to latent loyalty, a business can devise a strategy to combat them. The Chinese restaurant might consider adding a few all-American dishes to its menu to pacify reluctant patrons. 4. Premium Loyalty: Premium loyalty, the most leverageable of the four types, prevails when a high level of attachment and repeat patronage coexist. This is the

preferred type of loyalty for all customers of any business. At the highest level of preference, people are proud of discovering and using the product and take pleasure in sharing their knowledge with peers and family. Loyal Swiss Army Knife users are constantly telling friends and neighbors how valuable the knife is; how many handy uses it has; and how often they have used it in a day, a week or a month. These customers become vocal advocates for the product or service and constantly refer others to it. TYPES OF CUSTOMER RETENTION In order to cater to different types of customers, different types of customer retention strategies need to be pursued. These are: 1. Financial or discount strategies: Increased customer loyalty to price, incentives Frequent flyer/reader/buyer/visitors, Rewards. Discounts, product upgrades, awards, prizes Related products or providers expand the net

Relationships concentrating exclusively on incentives tend to be weak. 2. Social Bonding or emotional strategies Refers to a friendly companionship, trust, and ties. Increased customer loyalty to the organization Connections Personal insight, recognition, mutual affection Interpersonal interactions expand the link

3. Structural-interaction or functional strategies Use system design to solve problems, reinforce purchases, and recognize the importance of each customer. Systemic mass personalization. Management Cultivation, simulation Artificial intelligence continues the connections

Increased customer loyalty to the experience.

1. FINANCIAL STRATEGIES The financial bonds tie in the customer primarily through financial incentives, lower prices for volumes or for customers who have been patronizing the firm over time. Frequent flyer programs, rewards program of hotels and credit cards are examples of financial bonding through volume and frequency rewards.

Bundle and cross selling is seen in the case of magazine subscriptions, credit cards, telecom and internet services in which customers can buy other services provided by the same provider or someone else at a lower cost. Companies also offer the assurance of stable prices or lower price increase than those paid by new customers to retain their customers. The option of earning a higher interest rate given to ICICI Bond holders, whose bonds were getting redeemed, if they invested the redemption amount in a fixed deposit is an example of stable prices in a situation where the interest rates were going down. One of the biggest disadvantages of the financial bonds is that they can be easily imitated. Also, it attracts a lot of price sensitive customers who switch to a cheaper option at the first opportunity. Thus financial bonds are the weakest bonds. Different ways of using discount strategy are: Offering discounts Giving discounts is one way of applying your customer retention strategy. It can also help your company increase its sales on the products and services that you offered. Customers are grateful when they are given discounts on the items that they need. Then they have more room in their budget. That can be important if you want them to buy more of your products. Also note that There are times that if you dont give discounts, your customers can turn to another store that may provide the same service,

only cheaper. When you give discounts, you can also increase customer loyalty retention. Freebies Freebies are items that are given to the customers for free. This can be profitable both for the company and for customers. How? If you give free stuff to your customers, they are more likely to enjoy shopping at your store. That means you make more money in the long run. Customers can also benefit from the freebies you give because they get stuff for free! Charge lower price to customers who buy large supplies This method is especially used in modern retail and in fact has been the best performing tactic of modern retail. Offering discounts for regular customers as well as giving discounts for purchase of a certain value has motivated people to visit the same store over and over again thereby increasing customer retention. Give your customers free samples Giving your customers free samples is an effective strategy to creating a lasting impression in the mind of your customers. In fact, business empires have been built on this single customer retention strategy; free samples and Debbi Fields is one of such successful entrepreneurs that leveraged the power of free samples. Buy one get one "Buy one, get one free", or "Buy one, get one" is a common form of sales promotion. While rarely presented to customers in acronym form, this marketing technique is universally known in the marketing industry by the acronym BOGOF, and it is regarded as one of the most effective forms of special offers for goods. Price discounts have the effect of reducing margins, but so do better service ideas like VIP phone lines and loyalty programs. So you can take your discount on the top line

or the operational line, the fact is it costs money to provide good service to best customers in hopes of keeping them. i.e., whats the $10 million you spent on a CRM system? Choose your poison, it costs money to retain customers. The real question is this can a company make money doing it. If by giving a customer a discount a company increase their overall profitability, in excess of what it lose on a discount, then I made money. Same with the costs of a loyalty program, a rebate program, a newsletter, a special room, a lead management system, etc. Problem is, most people dont know how to *measure* any of this properly. Discounts arent bad by themselves. What screws people up is not offering them at the right time to the right customers with the right value of the discount or operational expense. Discounting to best customers can be very dangerous something most people dont know, let alone measure correctly. One can lose money very, very quickly. Company have to understand subsidy costs and how to measure them or you get burnt very quickly. The best meaning most profitable way to reward loyal customers is with nondiscount aspirational offers that drive loyalty. These offers could be anything from simply thanking them for their business (surprising how well this can work if done correctly) to highly specialized services or access to the company. Company can also take advantage of known LifeCycle purchase transition behaviors. Many best customers start out buying in one category and then switch to another; you can run a simple analysis to discover these patterns. Many moderate value customers simply never make the transition. But if you know there is a likelihood of the transition and help it along a bit, you can turn a moderate customer into a best customer with a well-timed category discount.

Over time, you continue to refines segments and discounts until you optimize the entire system for maximum profitability; you are using the LifeCycle to manage margins by applying discounts very precisely. Example of this can be found here: The Discount Ladder. So yes, discounts can be bad. But they can be very good. They are the ultimate motivator, and so are very effective. You just have to know the who, when, and what of using them. Big Bazaar, the Indian discount retail chain. When it first started the concept of discount retailing in India, it was perceived to be supplying defective products. Today it is rated as one of the best retail chains in India with an extremely efficient supply chain and a host of private labels of its own. How has that been possible? The answer is simple- it focused on its priority: Delivering at the lowest price to the end consumer. If we tend to compare graphically the strategy of traditional vs discount players, it will look something like this:
Discount strategy breaking the mould.

Traditional strategy trajectory

Perceived product performance

Competitive position of traditional players

Price ---

The traditional players in the market normally tend to increase perceived performance with an increase in price, whereas for a discount player the focus is on increasing performance with no increase in price. That is the major difference in approach in the two strategies. 2. EMOTIONAL STRATEGIES Customer Retention dont forget the emotional! When we look at our customer retention strategies it needs to be done rationally. We should be aware of the potential lifetime value of customers and the use of financial dynamics surrounding our business decisions. The benefits of the products and services we offer to our customers can be measured in rational terms they are based on sound reason. However, absolutely not to be forgotten is the power of the emotional behaviour. This is particularly true when it comes to our purchasing decisions, be they impulsive for the one off small purchase, or indeed the emotional rationale in the justification of a major purchase behind the often used saying I awarded X the contract because I liked the people So when you are re-evaluating your customer:

Increase your engagement when did you give them a good listening to? What is it that your customers really value? chances are you do not know. How easy are you to do business with? when did you last try to contact your own business?

What makes your product or service really different. What else? you already have permission with an existing customer, so why dont you develop something exclusive with them. Sort mistakes quickly and without fuss. Surprise your customers every once in a while. Say thank you.

The current climate also provides opportunity for businesses that know how and when to act. Here are four key customer retention strategies to help you keep your customers coming back: 1. Ask for feedback. Most dissatisfied customers will simply walk away from a business rather than make their displeasure known. Thats why its essential to be proactive about getting feedback. Madigan Pratt, whose Williamsburg, Va. based customer relationship marketing firm Madigan Pratt & Associates works with hotels, suggests following up with customers to ask about their experience and invite them back. If they respond well, ask them to post a review on sites like Yelp or Angies List. Send them an email with a link to make it easy for them, Pratt adds. Once you receive feedback, be sure to act on it. When people feel like theyre being listened to, theyll trust you more and be more engaged with your business, says Debra Schmidt, author of Building Customer Loyalty from the Inside Out. 2. Expand your offerings. If you can expand your product or service line, you stand a better chance of continuing the relationship with customers who feel a need to tighten their budgets. Kate Zabriskie of Business Training Works in Port Tobacco, Md., provides this example: Say you have a beauty salon. You can offer a mini treatment. Or if youre a bakery that does high-end wedding cakes, consider a more affordable selection. If a customer has fallen by the wayside, consider offering a scaled-down service. Your customers might not be able to afford your offering right now, Schmidt says, but you need to build bridges for when they do. 3. Offer loyalty rewards. This tried-and-true technique remains powerful,

especially if your customers perceive real value in the reward. You dont need to break the bank to offer rewards like frequent-buyer discounts or a punch card good for free service after 10 visits.

Pratt cites a hotel client that invited guests to participate in an online photo contest, with a prize of a coupon for cocktails on the next visit. That approach can be adapted to just about any business. For example, an auto shop could create an online photo forum for local car enthusiasts, and reward a random winner with a tune-up; an outdoors store could create a forum for sharing camping and wilderness photos. Activities like these can also help foster a sense of community around a business. 4. Lead the conversation. Effective use of online communications tools is essential for owners of growing businesses. The companies that arent out there in social media are missing out on conversations their customers are having about them, says Bill Cusick, CEO of the customer experience consulting firm Vox Inc.in Chicago. If you dont get out there, someone will start an account about you. Indeed, search the word sucks on Facebook, and among the results youll find hundreds of pages created by disgruntled consumers targeting companies large and small. It takes more than just putting up a company page, though. Cusick stresses the importance of showing theres a human being behind the interaction: You have to have individuals that people can feel like theyre communicating with. If you connect with your customers through Twitter, for example, use your first name and your company name as your handle. The most lasting way of retaining customers, however, is through conscientious service that includes following up on any issues or complaints. If a consumer has a negative shopping experience with a company, he or she may deal with that business less often or not at all. If the firm sincerely apologizes and takes the time to have a polite representative telephone the customer occasionally to see how they can meet his or her needs, however, the consumer may reconsider and keep dealing with that company despite any past unpleasantness.

Satisfaction surveys about customer service, as well as a store's products, can help a business find areas of improvement that may help it retain customers. Short, thoughtful surveys that ask for the customer's opinion can be seen by consumers as a sign that the business does care about the people it serves. When companies really listen to their clients and are willing to make changes to please them, it can lead to successful customer retention. Studies show that it's much less expensive for a company to spend money on customer retention than on acquiring new clients. Even smaller strategies, such as holding a customer appreciation day or remembering client birthdays, help in creating consumer loyalty. Of course, no strategy can make up for a poor product or consistently bad service. Companies who regularly monitor their daily operations as well as make any needed improvements are the most likely to have success in retaining their customers.

Emotional Bonding Brand affect, brand equity Company attachment Establish feelings of closeness, affection, trust, and respect.

IT may limit emotional bonds. Personal contacts, non-verbal signals, friendships, and personal interactions are critical elements.

Trust Willingness of customer to rely on the organization. Reduces uncertainty/risk Honest, fair, and responsible

Choice reduction and habit People have tendency to reduce choice. There can be a switch cost associated with change to the unfamiliar, untried, or the new. There may be cost in time, money, and risk History with the company Corporate Image Contacts and purchase history Service experience Intergeneration influence

Multi-faced loyalty Customer loyalty to: Brand: promotion Product: production Company: public relations Customers: meeting, chats, reunion Price: discounts, coupons Places: sounds, excitement Variety: new options, variations,

There are hundreds of emotions humans feel, there are twenty that drive and destroy value. These emotions form into four clusters. There is a destroying cluster of emotions, which if evoked in customers during their experiences with you will cause declines in both business value and customer retention. We then move into the attention cluster, these are emotions normally evoked by marketing. They are emotions like stimulated, interested and exploratory. Marketing evokes these emotions to make people pay attention to and be attracted to a particular company. These have a proven link to short term increases in revenue, but will not, by themselves, retain customers. Now we get into the heart of the matterthe upper half of the pyramid. Once your customers are with you how do you get them to stay? How do you get them to want to stay because of their emotional bond? Well it is simple, by evoking the recommendation cluster of emotions. These are emotions like cared for, trusted and valued. Finally, at the top of the pyramid we have the advocacy cluster of emotions. This only has two emotions, which shows how strong these emotions are. The emotions here are happy and pleased emotions demonstrated in the research model to be the real drivers of advocacy and loyalty. These are the emotions that have a mathematical link with customer loyalty and retaining customers. If you evoke the destroying cluster of emotions, you will reduce retention. If you evoke the emotions in the attention, recommendation and advocacy

cluster of emotions, you will increase retention. It is also worthy of note that there are a number of emotions that people talk about and employ as key performance indicators, like satisfied and delighted. This means that despite their widespread use in business today, they have no proven link to drive or destroy value or retention. Why are you measuring customer satisfaction if satisfaction does not drive value or retention? It is even more surprising when we already know that satisfied customers still leave organizations. As Marketing has undertaken their role in attracting customers through the attention cluster, we need to focus on limiting the destroying cluster and building on the attention and advocacy cluster to retain these customers. Therefore, there are three questions we now need to answer. Where are you today? How are we doing against all these emotions? What is our level of emotional engagement with customers? All organizations have an Emotional Signature, a level of emotional engagement. Once you know your emotional profile, you can start to focus on evoking the emotions that will retain customers. The emotions evoked by a customer experience act as a chief mediator for customer retention. When combined with an organizations strong reputation and recognized expertise, Customer emotions are the chief determinant of customer retention. Without the emotional bond necessary to retain customers, customer loyalty is impossible. Interactions that evoke negative feelings, stress or manipulative tactics negate trust. And while there are a few notable exceptions, most companies do not intend to negate trust. Failure to craft a deliberate customer experience puts organizations at risk for doing just that. The first in creating strong customer retention is to engage management by asking whether it has deliberately designed a customer experience. If the answer is yes, then the next step is to evaluate the delivery, consistency and overall effectiveness of this customer experience. In such cases, accuracy of measurements has been the most significant challenge to evaluate the effectiveness customer experience design.

The services we offer help organizations in designing deliberate customer experiences that improve customer acquisition, customer loyalty and customer retention. Hedonic pleasure Hedonic benefits are defined as those pertaining to aesthetic and experiential benefits that are often labeled as luxuries. Utilitarian benefits are defined as those pertaining to instrumental and functional benefits that are closer to necessities than luxuries. In the context of cell phones, for example, the phones battery life and network coverage are utilitarian benefits, whereas aesthetic appeal from its shape and color are hedonic benefits. Increasingly, consumers are engaging in activities simply because they are inherently interesting, pleasurable, and gratifying. Some hedonic pursuits, like listening to music or going out to dinner, require relatively little mental or physical effort, while others, such as leisure travel, can involve a substantial amount of personal investment and expense. Hedonic experiences while enjoyable, are not necessarily productive or goal directed, it is intriguing as to why consumers devote so much to such apparently frivolous and momentary activities. As such, the aim here is to explore the value consumers derive from pursuits of pleasure. Hedonic Consumption identifies hedonic consumption as involving product experiences that stimulate consumers feelings and imaginings. Traditional consumer research has tended to neglect such experiential aspects of behavior, resulting in limited understanding of the importance of hedonic benefits. Products designed to delight increase customer loyalty, more so than simply satisfying them. Empathy Why does customer empathy work? These days, the world is so complex customers need you to ease their fears about buying your products and services. They need you to be an empathetic, trusted advisor who understands their point of view, not merely a person who completes the transaction.

Key training points: 1. Customers Want Empathy, not Service. 2. Perform Like a Talk Show Host. Show Extreme Interest. 3. When People Love You, They Give You More Money. 4. Eliminate the Fear of Doing Business With You. Spending time understanding the world from our customers perspective can be key to being able to build a long-term relationship with them. Its also key in building empathy into our business. A common definition of empathy is being able to walk a mile in someone elses shoes. In dictionary terms it is also defined as: Identification with and understanding of anothers situation, feelings, and motives. The basis of deep and meaningful closeness in a relationship is empathy, this is the foundation of the experience of we rather than just I or you. If your customer senses that you really feel how it is for them, they can feel less anxious, stressed, closer and more trusting. Fundamentally, empathy is a skill, like any other, that can be learnt and that we can all get better at. And much the same, you can build empathy into your business and your team. 3. STRUCTURAL/FUNCTIONAL STRATEGIES FOR CUSTOMER RETENTION This strategy believes in making long term ties with the customers such that he is retained with the brand / product / company for a longer time. Sub strategies might including tying up for a longer time with the customer, charging lower prices or turning the service into long term.

With increasing competition in each sector, customer retention is becoming more and more important and therefore these strategies are increasingly being used by major organizations to retain customers. Customer retention mainly means that the customer should be ready to repurchase the brand. In such scenarios, structural ties with the customer can ensure that repurchases happen frequently. For example, several pharmaceuticals as well as electronics companies provide support to their distributors who are their internal customers to increase purchase and thereby distribution. Similarly benefits can also be provided to customers via referral programs wherein the primary customer is motivated to bring more and more secondary customers to the company. Thus you have made a structural tie with your primary customer. Three prominent ways to make strong structural ties with customers include: Creating Long term contracts: If you take a yearly subscription of a magazine or a newspaper, it is ensured that you will be a customer for the company for a minimum of 1 year. Thus it has retained a one time customer for a whole year. A cable network can offer 6 months plans for retaining the customers. An Internet service provider can have varying packages for customer retention. The frequent flier miles concept is used widely in airlines to retain customers for a long time. In this strategy, if the customer flies a certain set of miles he is offered a reward and recognition. Similarly, the more miles he flies, the more rewards and recognition he gets. Thus the service is by itself turned into long term for the customer and he would like to take as much advantage of the service as he can. Stay in Touch: No matter how happy your customers are with your business, they can be courted by more aggressive salesman and special offers. Make sure you maintain your relationships by staying in touch with your customers. You can use newsletters or e-mail lists to stay in touch and to let customers know about your new products or sales. For repeat customers and large accounts, the personal touch is best. Call and e-mail to check in to find out if your company can provide any services or to find out if past purchases are living up to expectations. For very high-end clients, a personal dinner is a

nice touch. You dont have to keep in touch just to try to sell them something. Customers appreciate the ongoing communication and businesses that are also willing to listen. Charge lower price to customers who buy large supplies: This method is especially used in modern retail and in fact has been the best performing tactic of modern retail. Offering discounts for regular customers as well as giving discounts for purchase of a certain value has motivated people to visit the same store over and over again thereby increasing customer retention. Welcome Complaints Customer complaints might seem like a death sentence that means you have lost their business forever. However, complaints are really an opportunity to win your customers loyalty by showing them that you are committed to customer service and to providing the best product. Complaints also show you how can improve your product or service so that you can win over new customers. Always welcome complaints and other feedback as a chance to grow. Loyalty Programs Many businesses offer loyalty and rewards programs to entice customers into repeat business. These can be discounts or point accrual programs based on the amount purchased or the quantity of items purchased. Other value-added options for your customers include special promotions for repeat customers, or even a special gift. These do not have to be significant discounts or expensive gifts: Even small gestures make a big impression.