Customer loyalty (customer retention)

Customer loyalty (or customer retention) is the degree to which a company keeps its existing customers. Customer loyalty can be measured through repeat business and customer referrals. In most marketing environments, it is significantly more expensive to find and acquire a new customer than it is to retain an existing customer. Yet according to Paul R. Timm, author of Seven Power Strategies for Building Customer Loyalty, few companies measure customer retention rates or evaluate why customers do not return. Dr. Timm’s research suggests three categories of “turnoffs” reducing customer loyalty: value, systems, and people. Value turnoffs are situations in which customers think they are not getting what they paid for. Value turnoffs include inadequate guarantees, high prices relative to the perceived value, and a failure to meet quality expectations. A few years ago, a fast-food chain introduced a new “deluxe” hamburger, but in reality it only added lettuce and a tomato to its existing burger. The price was significantly higher, and consumers could easily see what they were paying extra for. Consequently, the product was a flop. Marketers of SERVICES often need to explain what they are providing in order to assure customers that they are getting good value for their purchase. Systems turnoffs are situations where the purchase or distribution of PRODUCTs disappoints customers. Anyone who has gone through a telephone menu and, after spending five minutes on the phone, not found the desired choice has experienced systems failure. INTERNET marketers know they have about five seconds to catch viewer’s attention. Simple features on websites, like “back” and “return to main menu” buttons are basic to facilitating consumers’ needs. Slow service, lack of delivery choices, and unnecessary paperwork all reduce customer satisfaction and loyalty. People turnoffs include lack of courtesy, failure to attend to the needs of customers, and unprofessional behavior. One retailer directed his employees to tell customers that any item the store did not have in stock was “on back order.” People returned, expecting to find the product available and were usually disappointed; they soon went elsewhere. A television story described a telephone customer-service contractor in India using a scene with Jack Nicholson in the film A Few Good Men to train employees how to respond professionally and courteously to an angry customer. Occasionally a business will choose to lose a rude customer, but it is more expensive to replace a customer than retain one. Customers who have a poor experience with a firm are highly likely to tell others about their experience. People turnoffs can also be subtle rather than blatant. Jeff Mowatt suggests customer loyalty is often affected by first impressions, including whether the business or business representative looks different from a customer expected. Bankers know that clients like them to look professional and dress conservatively; flashy dress suggests that the banker might take excessive risks with their funds. Similarly, an electrician who shows up in a suit and driving a luxury car brings fear of fleecing to consumers. Mowatt also suggests consumer retention is affected by employees’ communication skills and promises made to customers. If people do not understand what is being said, either through excessive use of technical jargon or inability to understand accents, they are likely to walk away and not return. Many marketers also recommend understating promises to customers as a way of not building high expectations and setting an expectation that can be exceeded. When asked what advice he had for young people, new in marketing, one marketer said simply, “Be on time for your appointments and return your phone calls. You would be surprised how few people do this.”
See also RELATIONSHIP MARKETING; GAP ANALYSIS.