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Customer retention: keeping the stream of revenues and profits.


Markets are becoming increasingly competitive. Companies are responding to these competitive pressures in many different ways. However, it is apparent that companies are focusing more on customer acquisition and are not addressing customer retention aggressively enough.

A large amount of research and resources have been spent on getting customers who provide revenues and profits. But keeping customers is often a neglected activity. It has received little research and few resources. Quite often, a lost customer is gone forever.

Customer retention is one of the most important business issues for the 1990s. It is the key to securing revenues and driving profits. Customer retention is the best measure of the value of a company's products and services. Like quality, customer retention does not improve, unless you measure it.

Senior management commitment to customer retention is not sufficient. Companies must reengineer their information systems, incentives, training, and policies and procedures. At a minimum, customer retention involves the integration of customer expectations and operational capability. Employees must be empowered to do what is required to keep a customer with results acknowledged through rewards and recognition.

Ten guiding principles

on keeping customers

* Measuring lost customers as a primary performance indicator;

* Knowing the net value (total profits minus acquisition costs) of a customer over their life with the company;

* Keeping every attractive customer requires knowing their needs and expectations;

* Comparing service delivery and customer satisfaction to the competition;

* Recognizing the positive correlation between worker satisfaction and customer satisfaction;

* Soliciting feedback on why any customer leaves or reduces their purchases;

* Paying attention to things that cause customers to leave or reduce buying;

* Selecting, training, and developing employees with emphasis on the importance of keeping customers;

* Setting operating and investment strategies to retain customers;

* Being responsive to customer inquiries and problems.

Customer retention model

Each company needs to develop a customer retention model for its unique products and services. This model would inform company managers as to what they must do to retain the customer. The model should consist of those items that describe how the customers consider, buy, use and switch products. Embedded in this model would be an understanding of how customers rank the products and the available incentives to switch.

The place to start is with a customer retention audit, which should examine a number of factors including marketing information systems and customer activity. From the findings of this audit, a strategy can be formulated based on a specific retention model with plans constructed for executing the keep-the-customers strategy.

Nick McGaughey is a lecturer and consultant based in Nashville, Tenn.
COPYRIGHT 1991 Institute of Industrial Engineers, Inc. (IIE)
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Copyright 1991 Gale, Cengage Learning. All rights reserved.

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Author:McGaughey, Nick
Publication:Industrial Management
Date:Nov 1, 1991
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