Customer Retention Strategy

Following are some of the important strategies that should be implemented for increasing customer retention:

  1. Changing Retention rates: There are two basic strategies for changing retention rates:

    1. Fixed response higher spending: Retention rates can be substantially increased by spending more on creating new business strategies or remolding existing strategies to increase retention rates.
    2. Fixed spending higher response: The retention rates graph can also be hiked by implementing changes in business processes without spending anything. However, it’s a tough task for organizations to achieve this because it’s difficult to increase retention without incurring any cost. Though this approach is preferred but it’s not always feasible.

    By taking an example of organizational customer service we can easily compare the above two strategies. The organization could endow their customer service executives and allow them to take quick actions with regards to customer queries and problems. This may lead to increase retention rates without incurring any cost. But if the organization enhances retention spending by rather adding more customer service executives, queries and problems could be more quickly materialized and hence increase retention rate vastly.

  2. Short term loss and long term gain: It is not desirable for organization to retain all the customers. But high valued and profitable customers must be retained. Loyal customers who are high valued and are in relationship with supplier for a longer period of time, tend to produce higher profit. They normally require low service cost and are most likely ready to take premium services. They also act like brand ambassadors for the supplier to advocate other prospects to become potential customers. Hence it is essential for the organization to nurture their customers to create a strong bonding with them in short run and then focusing on higher profits in the long run over the whole life cycle of customers.

  3. Pricing best customers: Retention rate also depends on how the pricing of products are managed among the best valued customers. All the customers are always cost sensitive and concentrate basically to buy products on cheap rates. However, cost sensitivity of a customer substantially depends on condition of the market. For example if a product becomes extraordinarily famous and demanding in market and every customer is tending towards capturing this product then it becomes necessary to focus on technological aspects rather than focusing on the cost. If they do so then the cost sensitivity of these customers is least. Similarly if a product becomes common in market due to emerging competitors coming up with similar but more prominent products, then in this competition the value of the product decreases and the companies become rarely bothered for them. In this scenario the customers have the right to become highly cost sensitive as they know that they can negotiate with the suppliers to a greater extent.

  4. Retention and acquisition link: Retention and acquisition are interdependent approaches. Take an example of a Gym that provides a very low introductory offer to all the customers to attract them. Many customers are very price sensitive and have the tendency to defect if the Gym increases future membership price. If the Gym also provides the renewal cost to be as low as introductory price then they have a better chance to retain these price sensitive customers. But by doing so they are in risk of loosing high valued customers who prefer best services and less surrounding crowd. In this case the Gym must implement the strategy to continue taking high membership renewal cost. This process may lead to most of the low value customers to defect but the total profit in retaining the high value customers will be always more. This also helps to uplift the image and status of the Gym by providing best services to its customers which results in acquiring and retaining more high valued customers and generate good profit.


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Customer Relationship Management