Customer Loyalty and Retention Strategies By Charles Kwadwo Oppong

2 Outline  Definition of Customer Loyalty  What Affects Customer Loyalty  Relationship programs  Customer life cycle  Reasons for Lost Customers  Customer Retention Strategies  Problem Identification and Management  Conflicts and customer complaints

3 Customer loyalty Customer’s commitment or attachment to a brand, store, manufacturer, service provider, or other entity.  A behavior toward the product  An attitude to behave

4 Behavioral brand loyalty  Measured by proportion of purchase Undivided loyalty AAAAAAAAAA Occasional switcher AAABAAACAA Switched loyalty AAAAAABBBB Divided loyalty AAABBBAABB Indifference ABCDADCDBD

5 Churn rate or Attrition Rate  The rate at which new customers try a product or service and then stop using it in a given period of time.  Retention rate = 1 – the attrition rate..

6 Problems with behavioral approach  A customer may be making a repeat purchase not because of any true loyalty or commitment,  But because of convenience, price, availability, or inertia due to habit.  Inertia suggests a low sensitivity to the brand since purchases are made without a real motive for the choice.

7 Attitudinal brand loyalty Include favorable attitude that reflects a preference or commitment expressed over time. Emotional attachment, evaluation  No loyalty  Inertial loyalty or spurious loyalty  Latent loyalty

8 Relationship commitment  An enduring desire to maintain a valued relationship  Loyal customers, high in repeat purchase behavior and strong in attitude

9 Transaction vs. relational continuum TransactionRelational Objective Make a sale Create a customer CharacteristicAnonymityinterdependence Criteria of success Volume price, new customer Value enhancements, repeat exchange Interaction tone Sale as a conquest, discrete event Sale as an agreement, continuing process

10 What affects customer loyalty

11 Customer satisfaction

12  A post-purchase or post-choice evaluation that results from a comparison between those pre-purchase expectation and actual performance  Satisfied customers may not be loyal customers.  Xerox’s finding: satisfaction rating 4 is six times more likely to switch to others than rating 5. Customer satisfaction

13 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.

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

15 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

16 History with the company  Corporate Image  Contacts and purchase history  Service experience  Intergeneration influence

17 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,

18 Guidelines for enhancing loyalty

19 Relationship programs  Financial Incentives  Social Bonding  Structural-interaction

20 Financial Incentives  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 concentrate exclusive on incentives tend to be weak. Average American Consumer: 3.5 programs

21 Social Bonding  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

22 Structural-interaction  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.

23 Customer life cycle

24 Reasons for Lost Customers  Dissatisfaction  Relative Advantage  Conflict  Loss of Trust  Cease to need  Novelty Seeking

25 Customer Retention Strategies  Welcome  Reliability  Responsiveness  Recognition  Personalization  Reward Strategies

26 A welcome strategy The organization’s appreciation for the initiation of a relationship. Creating a delightful surprise, making a good first impressionCreating a delightful surprise, making a good first impression First touch: additional customer informationFirst touch: additional customer information Reassure the buyers that they have made the correct choices.Reassure the buyers that they have made the correct choices. Treat like a first date. Don’t overdo it!Treat like a first date. Don’t overdo it!

27 Reliability The organization can repeat the exchange time and time again with the same satisfying results. –Keep promise –Ensure consistent quality –Continuous promotion is still the key.

28 Responsiveness  The organization shows customers it really cares about their needs and feelings.  Loyal employees create loyal customers. Internal marketing.  Customer-contacted employees should have the authority as well as the responsibility for date to date operational activities and CRM decision.

29 Recognition  Special attention or appreciation that identifies someone as having been known before.  People respond to recognition.  Recognition and appreciation help maintain and reinforce relationships.

30 Personalization Use CRM system to tailor promotions and products to the specific customers.  Offer engine: take customer data after it is analyzed and applies it to create the offer or message that is appropriate to the individual customer. Ex., My site, Click stream analysis, free ride, etc.

31 Access strategy  Identify how customers will be able to interact with the organization.  General contact, product return, technical report, service representative, change a mailing address  Is the access quick and easy?

32 A Communication process

33 Organization vs. customer initiated communication  In organization-initiated communication, organizations must consider the intended message, channel (medium), and receiver characteristics.  In customer-initiated communication, consider the establishment of toll free calls, web sites, priority access for providing services and collecting customer data.

34 Customer-initiated communication

35 Reward strategies  Frequent, best customers  Partnership Management Program  Switching costs: financial penalty, time loss, psychological barrier  Termination Penalty

36 Problem Identification and Management  Rather tell the company than switch to a competitor or tell someone else. Acting rather than reacting.  Build numerous mechanism for identifying customer problems. –Customer satisfaction survey –Mysterious shoppers –Websites, other contacts points

37 Conflicts and Customer Complaints  Level of dissatisfaction  Attrition of blame  Cost/benefits of actions  Personal characteristics: –highly educated, –self-confident, –aggressive, –Older women.

38 Dealing with complaints Having the skill to interact with different types of people. Trained in methods of interaction and in different style of communication.  Be customer-centric. Let the customers know that they have been understood.  Express regret  Resolve conflict –Accommodation, Compromise, Termination  Follow-up and prevent recurrence  Keep in touch and listen to customer

39 Resolve conflict A disagreement in which the views of the customer and the organization appear to be incompatible.  Accommodation: a settlement that emphasizes cooperative behavior.  Compromise: mutually acceptable middle ground that is somewhat satisfactory to both parties.  Termination