customer loyalty and retention strategies

11Customer Retention Strategies 吳明泉博士 2007

Customer Loyalty Customer Loyalty and and

Retention StrategiesRetention Strategies

22Customer Loyalty and Retention Strategies 吳明泉博士 2009

OutlineOutline Definition of Customer LoyaltyDefinition of Customer Loyalty What Affects Customer LoyaltyWhat Affects Customer Loyalty Relationship programsRelationship programs Customer life cycleCustomer life cycle Reasons for Lost CustomersReasons for Lost Customers Customer Retention StrategiesCustomer Retention Strategies Problem Identification and ManagementProblem Identification and Management Conflicts and customer complaintsConflicts and customer complaints


Customer loyaltyCustomer loyalty

Customer’s commitment or attachment to a Customer’s commitment or attachment to a brand, store, manufacturer, service brand, store, manufacturer, service provider, or other entity.provider, or other entity.

A A behaviorbehavior toward the product toward the product An An attitudeattitude to behave to behave


Behavioral brand loyaltyBehavioral brand loyalty

Measured by Measured by proportion of purchaseproportion of purchase

Undivided loyalty AAAAAAAAAAUndivided loyalty AAAAAAAAAA

Occasional switcher AAABAAACAAOccasional switcher AAABAAACAA

Switched loyalty AAAAAABBBBSwitched loyalty AAAAAABBBB

Divided loyalty AAABBBAABBDivided loyalty AAABBBAABB

Indifference ABCDADCDBDIndifference ABCDADCDBD


Churn rate or Attrition Rate Churn rate or Attrition Rate The rate at which new customers try a The rate at which new customers try a

product or service and then stop using it in a product or service and then stop using it in a given period of time. given period of time.

Retention rate = 1 – the attrition rate..Retention rate = 1 – the attrition rate..


Problems with behavioral approachProblems with behavioral approach

A customer may be making a repeat A customer may be making a repeat purchase not because of any true loyalty or purchase not because of any true loyalty or commitment, commitment,

But because of convenience, price, But because of convenience, price, availability, oravailability, or inertia inertia due to habit. due to habit.

Inertia suggests a low sensitivity to the Inertia suggests a low sensitivity to the brand since purchases are made without a brand since purchases are made without a real motive for the choice.real motive for the choice.


Attitudinal brand loyaltyAttitudinal brand loyalty

Include favorable attitude that reflects a Include favorable attitude that reflects a preference or commitment preference or commitment expressed over expressed over time. Emotional attachment, evaluationtime. Emotional attachment, evaluation

No loyaltyNo loyalty Inertial loyalty or spurious loyaltyInertial loyalty or spurious loyalty Latent loyaltyLatent loyalty


Relationship commitmentRelationship commitment

An enduring desire to maintain a valued An enduring desire to maintain a valued relationshiprelationship

Loyal customers, high in repeat purchase Loyal customers, high in repeat purchase behavior and strong in attitudebehavior and strong in attitude


Transaction vs. relational continuumTransaction vs. relational continuum

TransactionTransaction RelationalRelational

ObjectiveObjective Make a saleMake a sale Create a customerCreate a customer

CharacteristicCharacteristic AnonymityAnonymity interdependenceinterdependence

Criteria of successCriteria of success Volume price, new Volume price, new customercustomer

Value Value enhancements, enhancements, repeat exchangerepeat exchange

Interaction toneInteraction tone Sale as a Sale as a conquest, discrete conquest, discrete eventevent

Sale as an Sale as an agreement, agreement, continuing processcontinuing process


What affects customer loyaltyWhat affects customer loyalty


Customer satisfactionCustomer satisfaction


A post-purchase or post-choice evaluation A post-purchase or post-choice evaluation that results from a that results from a comparison between comparison between those pre-purchase expectation and actual those pre-purchase expectation and actual performanceperformance

Satisfied customers may not be loyal Satisfied customers may not be loyal customers.customers.

Xerox’s finding: satisfaction rating 4 is six Xerox’s finding: satisfaction rating 4 is six times more likely to switch to others than times more likely to switch to others than rating 5.rating 5.

Customer satisfactionCustomer satisfaction


Emotional BondingEmotional Bonding

Brand affect, brand equityBrand affect, brand equity Company attachmentCompany attachment Establish feelings of closeness, affection, Establish feelings of closeness, affection,

trust, and respect.trust, and respect. IT may limit emotional bonds. Personal IT may limit emotional bonds. Personal

contacts, non-verbal signals, friendships, contacts, non-verbal signals, friendships, and personal interactions are critical and personal interactions are critical elements.elements.


TrustTrust

Willingness of customer to rely on the Willingness of customer to rely on the organization.organization.

Reduces uncertainty/riskReduces uncertainty/risk Honest, fair, and responsible Honest, fair, and responsible


Choice reduction and habitChoice reduction and habit

People have tendency to reduce choice.People have tendency to reduce choice. There can be a switch cost associated with There can be a switch cost associated with

change to the unfamiliar, untried, or the change to the unfamiliar, untried, or the new. There may be cost in time, money, and new. There may be cost in time, money, and riskrisk


History with the companyHistory with the company

Corporate ImageCorporate Image Contacts and purchase historyContacts and purchase history Service experienceService experience Intergeneration influence Intergeneration influence


Multi-faced loyaltyMulti-faced loyalty

Customer loyalty to:Customer loyalty to: Brand: promotionBrand: promotion Product: productionProduct: production Company: public relationsCompany: public relations Customers: meeting, chats, reunion Customers: meeting, chats, reunion Price: discounts, couponsPrice: discounts, coupons Places: sounds, excitementPlaces: sounds, excitement Variety: new options, variations, Variety: new options, variations,


Guidelines for enhancing loyaltyGuidelines for enhancing loyalty


Relationship programsRelationship programs

Financial IncentivesFinancial Incentives Social BondingSocial Bonding Structural-interactionStructural-interaction


Financial IncentivesFinancial Incentives

Increased customer loyalty to price, Increased customer loyalty to price, incentivesincentives– Frequent flyer/reader/buyer/visitors… Rewards.Frequent flyer/reader/buyer/visitors… Rewards.– Discounts, product upgrades, awards, prizesDiscounts, product upgrades, awards, prizes– Related products or providers expand the netRelated products or providers expand the net

Relationships concentrate exclusive on Relationships concentrate exclusive on incentives tend to be weak. Average incentives tend to be weak. Average American Consumer: 3.5 programsAmerican Consumer: 3.5 programs


Social BondingSocial Bonding

Refers to a friendly companionship, trust, Refers to a friendly companionship, trust, and ties. Increased customer loyalty to the and ties. Increased customer loyalty to the organizationorganization– ConnectionsConnections– Personal insight, recognition, mutual affectionPersonal insight, recognition, mutual affection– Interpersonal interactions expand the linkInterpersonal interactions expand the link


Structural-interactionStructural-interaction Use system design to solve problems, Use system design to solve problems,

reinforce purchases, and recognize the reinforce purchases, and recognize the importance of each customer.importance of each customer.– Systemic mass personalization….Systemic mass personalization….– ManagementManagement– Cultivation, simulationCultivation, simulation– Artificial intelligence continues the connectionsArtificial intelligence continues the connections

Increased customer loyalty to the Increased customer loyalty to the experience.experience.


Customer life cycleCustomer life cycle


Reasons for Lost CustomersReasons for Lost Customers DissatisfactionDissatisfaction Relative AdvantageRelative Advantage ConflictConflict Loss of TrustLoss of Trust Cease to needCease to need Novelty SeekingNovelty Seeking


Customer Retention StrategiesCustomer Retention Strategies

WelcomeWelcome ReliabilityReliability ResponsivenessResponsiveness RecognitionRecognition PersonalizationPersonalization Reward StrategiesReward Strategies


A welcome strategyA welcome strategy

The organization’s appreciation for the The organization’s appreciation for the initiation of a relationship. initiation of a relationship.

• Creating a delightful surprise, making a good Creating a delightful surprise, making a good first impressionfirst impression

• First touch: additional customer informationFirst touch: additional customer information• Reassure the buyers that they have made the Reassure the buyers that they have made the

correct choices. correct choices. • Treat like a first date. Don’t overdo it!Treat like a first date. Don’t overdo it!


ReliabilityReliability

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


ResponsivenessResponsiveness The organization shows customers it really The organization shows customers it really

cares about their needs and feelings.cares about their needs and feelings. Loyal employees create loyal customers. Loyal employees create loyal customers.

Internal marketing.Internal marketing. Customer-contacted employees should Customer-contacted employees should

have the authority as well as the have the authority as well as the responsibility for date to date operational responsibility for date to date operational activities and CRM decision. activities and CRM decision.


RecognitionRecognition Special attention or appreciation that Special attention or appreciation that

identifies someone as having been known identifies someone as having been known before.before.

People respond to recognition. People respond to recognition. Recognition and appreciation help Recognition and appreciation help

maintain and reinforce relationships.maintain and reinforce relationships.


PersonalizationPersonalizationUse CRM system to tailor promotions and Use CRM system to tailor promotions and

products to the specific customers.products to the specific customers. Offer engine: take customer data after it is Offer engine: take customer data after it is

analyzed and applies it to create the offer analyzed and applies it to create the offer or message that is appropriate to the or message that is appropriate to the individual customer. Ex., My site, Click individual customer. Ex., My site, Click stream analysis, free ride, etc. stream analysis, free ride, etc.


Access strategyAccess strategy Identify how customers will be able to Identify how customers will be able to

interact with the organization.interact with the organization. General contact, product return, technical General contact, product return, technical

report, service representative, change a report, service representative, change a mailing addressmailing address

Is the access quick and easy?Is the access quick and easy?


A Communication process A Communication process


Organization vs. customer initiated Organization vs. customer initiated communication communication

In In organization-initiated communicationorganization-initiated communication, , organizations must consider the intended organizations must consider the intended message, channel (medium), and receiver message, channel (medium), and receiver characteristics.characteristics.

In In customer-initiated communicationcustomer-initiated communication, , consider the establishment of toll free calls, consider the establishment of toll free calls, web sites, priority access for providing web sites, priority access for providing services and collecting customer data.services and collecting customer data.


Customer-initiated communicationCustomer-initiated communication


Reward strategiesReward strategies

Frequent, best customersFrequent, best customers Partnership Management ProgramPartnership Management Program Switching costs: financial penalty, time loss, Switching costs: financial penalty, time loss,

psychological barrierpsychological barrier Termination PenaltyTermination Penalty


Problem Identification and ManagementProblem Identification and Management

Rather tell the company than switch to a Rather tell the company than switch to a competitor or tell someone else. Acting competitor or tell someone else. Acting rather than reacting.rather than reacting.

Build numerous mechanism for identifying Build numerous mechanism for identifying customer problems.customer problems.– Customer satisfaction surveyCustomer satisfaction survey– Mysterious shoppersMysterious shoppers– Websites, other contacts pointsWebsites, other contacts points


Conflicts and Customer ComplaintsConflicts and Customer Complaints

Level of dissatisfactionLevel of dissatisfaction Attrition of blameAttrition of blame Cost/benefits of actionsCost/benefits of actions Personal characteristics:Personal characteristics:

– highly educated, highly educated, – self-confident, self-confident, – aggressive, aggressive, – Older women.Older women.


Dealing with complaintsDealing with complaints

Having the skill to interact with different types of Having the skill to interact with different types of people. Trained in methods of interaction and in people. Trained in methods of interaction and in different style of communication. different style of communication.

Be customer-centric. Let the customers know that Be customer-centric. Let the customers know that they have been understood. they have been understood.

Express regretExpress regret Resolve conflictResolve conflict

– Accommodation, Compromise, TerminationAccommodation, Compromise, Termination Follow-up and prevent recurrenceFollow-up and prevent recurrence Keep in touch and listen to customerKeep in touch and listen to customer


Resolve conflictResolve conflict

A disagreement in which the views of the A disagreement in which the views of the customer and the organization appear to customer and the organization appear to be incompatible.be incompatible.

Accommodation: a settlement that Accommodation: a settlement that emphasizes cooperative behavior. emphasizes cooperative behavior.

Compromise: mutually acceptable middle Compromise: mutually acceptable middle ground that is somewhat satisfactory to ground that is somewhat satisfactory to both parties.both parties.

TerminationTermination

customer loyalty and retention strategies

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