Paper Topic: Customer Retention Strategy
Requirements: A research proposal area will outline how you would approach a research project on The Customer Retention Strategy. What are companies doing to retain customers? The purpose of the paper is to carry out the research and design an appropriate research strategy. The basis for selection must be justified in the proposal. You are NOT required to carry out the research The proposal must be grounded in the present and not be future related. It must relate to how organizations use, experience or are affected by information in its broadest sense. Such a proposal would contain a discussion of the basis on which the research is to be carried out with a particular focus on the research methods employed.
The importance for a modern company to have a well-defined and multifaceted set of performance benchmarks comprising the ‘bottom line’ cannot be overestimated on a number of premises. For one, the recent trends point out confidently to the increasingly intensifying competition for opportunities and market shares that would, a few decades ago, claim less strategic-managerial resource to secure. Indeed, opportunities are becoming so scarce and the customers so well-informed and sophisticated that it is increasingly difficult to find out reserves for ‘surprise’ in excess of expectations, to sustain a reasonable competitive advantage or market power. While some ten years ago the MBA texts were still selling the taxonomy of loyal consumers versus those value driven and price shoppers, the first category now appears more of an anachronism, while the other two get dissolved within each other if overlapped. As a result, the very notion of customer loyalty is more and more called into question. What exactly if any makes customer loyalty? Can a brand be perceived a surefire solution these days, when consumers allocate their depressed expected budgets away from national brands and more into private brands (local supermarkets), or at any rate exhibit far lesser cost of switch to another solution that provides them with better value and price?
The present analysis is an attempt at designing a general research approach that could prove effective in exploring the issues of customer retention and ways in which the modern companies maximize it. We intend to treat the topic in its broader connotation, by extending the issue of retention to company employees, so as to possibly arrive at a consistent vision of what it is that enables the successful companies capture all complementary sources of their competitive edge.
Review & Analysis of Literature.
The companies operating on these markets exhibit the two, seemingly controversial behavioral and strategic patterns. First, they seek to remedy the ever shrinking market shares by retaining the relatively stable core, or retrenching within the more secure niches. Second, they try to diversify their market portfolio, by entering (or creating) new markets with a priori higher market power (and each product tentatively counts as a market). Then, they seek to eliminate the enormous (yet natural) entry barriers in terms of high fixed costs, which call for high minimum efficiency scale (critical market shares) to attain sufficient scale economies (see, e.g. Varian 1992). The parades of consolidations, mergers and acquisitions, and downsizing (layoffs not least) all have to do with the major agenda of minimizing cost (better employing the assets) and maximizing synergies (better employing asset complementarities).
But then, similar trends can be traced on the micro level as well. For one, companies are desperate to enlarge the customer base (hungry for market share). For another, they seek to retain the core of their existing customers. Indeed, customer retention increasingly amounts to competitive advantage, more so in light of the sever competition of substitutes and low switch costs on these shrinking markets. The latter, incidentally, might well turn out to be an even more important problem than the market share: Indeed, when overall demand side (market capacity) decreases materially, market share alone is of but secondary relevance (even though there is more urge for its maximization). In any event, the modern tendencies call upon businesses to adopt a broad set of performance benchmarks, if only to see that, while their transaction volumes and revenues might be growing, their profitability margins have decreased substantially over the past few years.
It is therefore about time for each company to revise its earning power, as well as that of its assets, of which the sustainable customer core is key and focus. Companies must look carefully into the structure of their clientele with respect to the significance of each of the sustained customers for the revenues. The second stage of the analysis would be to research the probability or, symmetrically, the expected period of time the customer will remain loyal. That would make the retention rate, which translates into the stable market share securing a critical competitive edge for the company.
While it would be encouraging to know that all significant customers are also loyal ones, the more important task facing the company is to study the factors underlying the retention rate, and prevent the valuable customers (earning assets) from switching just before the probability is high enough. Thus far, the businesses have been taught to attract more and more customers. In recent years, however, there emerged a growing recognition of the primary importance of retaining the existing customers, and spending the loyalty stimulating budgets on them, rather than on the prospective repeat buyers. One additional reason that the core customers are more important is that they in fact have been educated on the value of the products or solutions. They have reasonable expectations and adequate perception of value, and this category of customers need not be stimulated by the whole scope of conventional ‘brainwashing’ marketing tools. In fact, the latter might be less than consistent or compatible with the concept of trustworthy relationship between the customer and the solution provider that really is interested in studying the customer’s needs as they evolve, and provide unique solution incomparable with the standardized mass product offered to the newcomers.
Now, what observations have raised the issue of relationship adequacy in the first place? It is increasingly a fact of life that the otherwise seemingly satisfied customers do tend to defect one day. That might partially be explained by the previously discussed increased substitutability as one outcome of competition. However, a better explanation that addresses readily the reserves the companies have not utilized to the fullest, has to do with the fact that the product’s (solution’s) parameters alone do not capture the entire scope of determinants of choice, and especially of choice with respect to staying versus withdrawing. Customer relationship management (CRM), aimed eventually at retention management, is becoming a single most important area of strategic management and marketing research that reveals some of the more pertinent aspects of the consumer behavior in this complex and volatile environment.
However, as we have already mentioned, quality management alone does not solve the problem of customer flight. In fact, certain studies conducted by consulting agencies, notably KPMG, have established that there is little direct relationship between quality or even customer relationship management and customer retention. Both ideally are aimed at the latter, however that outcome cannot be assured by these two alone. It appears that customer retention management is developing into a standalone discipline looking directly into the very transcendental domain of competitive edge building.
One reason why conducive customer rapport may not amount to customer retention is because these two pertain to very different dimensions of customer loyalty. Thus, customer relationship management almost always aims at building an affinity far deeper than that pertaining to apparently winning transaction. In fact, it shapes a long-term behavior on the part of both parties, which remains stable and co-operative even at periods of no transaction, thus not being attached to any specific procedures. However, such relationship and its derived behavior clearly is attached to the specific problem that both parties cooperate in solving; but that problem may not be defined as strict timelines, and may in fact involve a continuous series of partial or supporting (complementary) solutions throughout. Moreover, another facet of customer relationship management is that it is aimed at establishing an emotional bond that ties the customer with the solution provider. The customers that realize their unique problems well-and normally these are large customers capable of appreciating the unique, case-tailored product the company has to offer-are even assigned a customer relations manager that guides and consults the client through the process. The manager will aspire to collect as much feedback and information from the customer as possible. Most learning comes from disagreements and pronounced change in behavior, which it is the utmost art to be able to address in a conducive manner. Apart from the primary quality of product or solution, the customer shapes his prior expectations (as communicated to him by the ex ante marketing and is assessed against ex post performance) with respect to delivery time, personal attention and willingness to address mistakes and bottlenecks promptly.
The manager will do wise to get in touch with the customer immediately at the later stages of product delivery, to probe for any fine shades of customer preferences and expectations. The conventional strategy at this stage and onwards is dating back a few decades and amounts to under-shaping expectations and over-delivering. In more recent times, however, the emphasis is on delivering exactly what was promised at the time it was guaranteed. If the customer is calling and sounds frustrated, the manager will take notice of that immediately; however, no new information will probably be collected in this case. The proactive manager will give a few calls to the client, just to make sure he is doing fine and not experiencing any material shifts in needs, circumstances, or the understanding of the better ways to shape a solution. The customer will feel important, and will in turn eagerly feed back by participating and revealing more pertinent information in a prompt manner.
The customer retention, in contrast, may have to do more with ‘technical’ bond rather than with emotional affinity. In particular, retention as the ultimate objective, may prove somewhat artificial if stable at all. For instance, the customer may well have been “locked-in” with respect to a particular solution or product. That may be due to high cost of switch, which might pertain to complementarities or specificity of solution (Varian). For instance, the customer with insufficient employment record or credit history may have had to stick with clearly sub-optimal solutions for his mortgage or consumer credit needs.