Description
kkd
An Assignment On Customer retention strategies in Service marketing
CP-3205 (Marketing of services)
Submitted to H.R. Singh Assistant Professor DBA, JNSMS
1|Page
Submitted by Krishna Kanta Dutta Roll no-60, Sec- B MBA 4th semester Assam University
Introduction:
In this era of intense competition, it is very important for any service company to understand that merely acquiring customers is not sufficient because there is a direct link between customer retention over time and profitability & growth. Customer retention to a great extent depends on service quality and customer satisfaction. It also depends on the ability of the organization to encourage customers to complain and then recover when things go wrong. Complaints are natural part of any service activity as mistakes are an unavoidable feature of all human endeavor and thus also of service recovery. Service recovery is the process of putting things right after something goes wrong in the service delivery. There is no question that right customers should be the prime retention targets. The strategic choice is to monitor proactively competitive offers and constantly reward these genuinely satisfied customers for staying with the company. Without more financial and psychological rewards, these satisfied customers will sooner or later become "at-risk" right customers or wrong customers who are more likely to switch to other service providers, hampering growth and profitability.
Importance of Customer Retention:
Why are customers more profitable for service firms over a period of time? There are a number of reasons for this. To begin with, to acquire a customer a company incurs promotional costs like advertising, sales promotion etc. It is said that it costs five times more to attract a new customer than retaining one. The operating cost decreases when a customer stays. Services being rich in experience and credence qualities, it takes some time for customers to get accustomed to it and once they are used to the service and are satisfied with the service provider ,they tend to purchase more over a period of time.
2|Page
As they remain satisfied with a service provider, they spread a positive word of mouth, which is very effective in case of services for attracting new customers. Longer the customer stays with an organization, more the organization knows about him, which enables it to offer customized services which make it difficult for the customer to defect. This may even provide opportunities to the organization to charge price premium by offering individualized services which may be difficult for the competitors to offer. Considering the importance of retaining customers in service business, Reichheld & Sasser coined a term „Zero Defection?. They highlighted that companies can boost profits by almost 100% by retaining just 5% more of their customers. Further, it is also very important to understand the life time value of a customer. For example, if an average customer of BSNL pays Rs. 500 per month and stays with the company for 20 years., his average lifetime value will be Rs. 500x 12x 20=Rs. 1,20,000. Further, if by a positive word of mouth, he brings just one more customer to the organization, his value to the organization doubles. Therefore, it is important for all the employees in the organization to understand the life time value of their customers. Once they understand it, they will treat the customer accordingly and will focus on building relationship with the very people who keep them in business.
Reasons for customer Switching:
The reasons for customer switching can be identified as following: 1. 2. 3. 4. 5. Pricing (High price, unfair pricing, deceptive pricing) Inconvenience (Wait for service, wait for appointment) Core service failure (Service mistakes, Billing errors) Service encounter failure (Uncaring, impolite, unresponsive behavior) Response to service failure (Negative response, no response, reluctant response) 6. Competition (Found better service)
3|Page
7. Ethical problem (Cheating, Unsafe) 8. Involuntary switching (customer moved, provider closed) 9. Dissatisfaction with present brand 10.Change in fashion 11.Promises made by competitors 12.Change in the perceived benefits 13.Personal characteristics of the customer concerned 14.Pressure of salespersons 15.Personal reasons Many of service switching factors mention above are controllable from a service organization?s point of view.
Retention Tactics:
1. Image/Promotion - community service, direct mail, educational offerings, health fairs, integrated marketing communications, newsletters, regular customer contact, informational materials, website. 2. Service Quality - continuous quality initiatives, convenience, customer service training, demonstrate that customers are highly valued, mystery shopping, customer representatives, service failure training, smile, treat customers as family. 3. Research - analyze defection rates/reasons, classify customers by usage/satisfaction/loyalty, develop targeted retention programs, “inside-out” (customer-focused) business model. 4. Internal Marketing - loyalty task force, prepare “solutions” to recurring problems, share appropriate customer data with staff, reward and publicize customer care customer of the month. 5. Customer-Centered - “dialogue” marketing, customer bill of rights, consumer care councils, understand customer expectations.
4|Page
Strategies for Customer Retention
(A) Complaint Management System
Any worthwhile complaints management system has to have following basic features: a) Visibility: Customer should know where to complain. b) Accessibility: Customer should know how to complain. As a rule of thumb, the more formal the system for lodging complaints, the less accessible it is to customers. c) Responsiveness: Complaints need to be dealt quickly. The quicker the complaints are dealt with, the higher the customer satisfaction. d) Customer-focused approach: A service provider who adopts customerfocused approach, invites complaints and indicates commitment of resolving complaints by its words and actions in all fairness. e) Accountability: Someone in the organization has to take responsibility for complaint handling. f) Continuous Improvement: This is about looking at the root causes and fixing them. A good complaint management system must ensure that that complainant is kept informed, the staff understands the complaint processes, complaints are taken seriously and employees are empowered to deal with situations.
(B) Service Recovery Strategies
Consider the following incident regarding an airline (British Airways). “An aircraft door was left open in a rainstorm before takeoff and a passenger near the door unfortunately got showered. The flight attendant not only did everything that was routine- offered to have the customer’s garments cleaned and made sure that a
5|Page
customer relations representative contacted the customer later to demonstrate that they genuinely cared- but also made special gesture by offering the passenger a complimentary choice of certain tax free goods.” It is very important for service companies to have service recovery strategies which can be applied in case of service failure. The following steps are useful in an effective service recovery system. 1. Measure the costs of effective service recovery. It should include the indirect cost also, when a customer departs unhappily. 2. Break customer silence and listen closely for complaints. 3. Act fast. 4. Train and empower employees. The front line people must be trained and empowered by the organization. 5. Close the customer feedback loop.
(C) Managing Customer Waiting
Sometimes, it is not possible to match demand & capacity, and hence waiting by customers becomes inevitable. While reducing waiting time is important for a marketer, it is equally if not more, important to reduce the customer?s perceived waiting time. If a customer?s perceived waiting time is less, he will be more satisfied with the service. Various ways of managing customer waiting are as follows: 1. The organization should analyze its operational processes in order to identify and remove inefficiencies or bottlenecks, if any. 2. In case waiting cannot be avoided, a reservation system can be used. 3. Since unoccupied time feels longer than occupied time, keep customer occupied by installing distractions that entertain and physically involve them. For example, TV sets, magazines reading material can be provided in waiting area.
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4. Provide „waiting duration information? i.e. information about the expected length of wait and/or „queuing information? i.e. a customer?s position in queue with continuous update. 5. If unexpected delays occur, explanation should be given to the customer. This helps in reducing uncertainty and customer irritation. The key is to impress upon the customer that he has not been forgotten. Simple things like providing a glass of water or a cup of tea to the waiting customer can do wonders. 6. Keep resources not serving customer out of sight. This can be done by keeping idle employees out of view and conducting activities that do not involve customer interactions out of customer?s sight. 7. Try to reduce pre-service waiting time by transferring some of the preservice waiting to the service encounter phase. 8. A smiling service person who knows his job well can be very helpful in overcoming many negative effects of waiting. Therefore, training and incentive/ rewards for providing good service should be made.
(D) Offering financial benefits to increase customer retention –
Financial benefits such as frequency programs as well as club memberships provide exclusivity to customers and therefore they are retained to the product / company.
(E) Increasing social bonds for customer retention –
Especially true for services sectors, increasing social bonds with the right cues helps the customer relate better with the service / product and therefore helps in developing social bonds with the company / brand. Once such social bonds are developed, the customer rarely shifts to another brand.
(F) Building structural ties for customer retention –
This strategy believes in making long term ties with the customers such that he is retained with the brand / product / company for a longer time. Sub strategies might
7|Page
including tying up for a longer time with the customer, charging lower prices or turning the service into long term.
With increasing competition in each sector, customer retention is becoming more and more important and therefore these strategies are increasingly being used by major organizations to retain customers.
Conclusion
Today?s customers are becoming harder to please. They are smarter, more price conscious, more demanding, less forgiving and they are approached by many more competitors with equal or better offers. The challenge is not to produce satisfied customers; several competitors can do this. The challenge is to produce delighted and loyal customers. If these customers are retained with the organization, they become really profitable by way of increase in purchasing, reduced operating costs, price premiums and through referrals. Too many companies suffer from customer churn i.e. high customer defection. It is like adding water to a leaking bucket. Various strategies such as measuring customer life time value, efficient complaint management system and service recovery strategies can be really helpful in retaining customers.
References:
1. Services Marketing, Valarie A. Zeithaml, Mary jo Bitner, Tata McGraw-Hill Publishing Company Limited, Third edition. 2. Wikipedia.com 3. Slideshare.com 4. www.scribd.com 5. www.authorstream.com
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doc_189491457.docx
kkd
An Assignment On Customer retention strategies in Service marketing
CP-3205 (Marketing of services)
Submitted to H.R. Singh Assistant Professor DBA, JNSMS
1|Page
Submitted by Krishna Kanta Dutta Roll no-60, Sec- B MBA 4th semester Assam University
Introduction:
In this era of intense competition, it is very important for any service company to understand that merely acquiring customers is not sufficient because there is a direct link between customer retention over time and profitability & growth. Customer retention to a great extent depends on service quality and customer satisfaction. It also depends on the ability of the organization to encourage customers to complain and then recover when things go wrong. Complaints are natural part of any service activity as mistakes are an unavoidable feature of all human endeavor and thus also of service recovery. Service recovery is the process of putting things right after something goes wrong in the service delivery. There is no question that right customers should be the prime retention targets. The strategic choice is to monitor proactively competitive offers and constantly reward these genuinely satisfied customers for staying with the company. Without more financial and psychological rewards, these satisfied customers will sooner or later become "at-risk" right customers or wrong customers who are more likely to switch to other service providers, hampering growth and profitability.
Importance of Customer Retention:
Why are customers more profitable for service firms over a period of time? There are a number of reasons for this. To begin with, to acquire a customer a company incurs promotional costs like advertising, sales promotion etc. It is said that it costs five times more to attract a new customer than retaining one. The operating cost decreases when a customer stays. Services being rich in experience and credence qualities, it takes some time for customers to get accustomed to it and once they are used to the service and are satisfied with the service provider ,they tend to purchase more over a period of time.
2|Page
As they remain satisfied with a service provider, they spread a positive word of mouth, which is very effective in case of services for attracting new customers. Longer the customer stays with an organization, more the organization knows about him, which enables it to offer customized services which make it difficult for the customer to defect. This may even provide opportunities to the organization to charge price premium by offering individualized services which may be difficult for the competitors to offer. Considering the importance of retaining customers in service business, Reichheld & Sasser coined a term „Zero Defection?. They highlighted that companies can boost profits by almost 100% by retaining just 5% more of their customers. Further, it is also very important to understand the life time value of a customer. For example, if an average customer of BSNL pays Rs. 500 per month and stays with the company for 20 years., his average lifetime value will be Rs. 500x 12x 20=Rs. 1,20,000. Further, if by a positive word of mouth, he brings just one more customer to the organization, his value to the organization doubles. Therefore, it is important for all the employees in the organization to understand the life time value of their customers. Once they understand it, they will treat the customer accordingly and will focus on building relationship with the very people who keep them in business.
Reasons for customer Switching:
The reasons for customer switching can be identified as following: 1. 2. 3. 4. 5. Pricing (High price, unfair pricing, deceptive pricing) Inconvenience (Wait for service, wait for appointment) Core service failure (Service mistakes, Billing errors) Service encounter failure (Uncaring, impolite, unresponsive behavior) Response to service failure (Negative response, no response, reluctant response) 6. Competition (Found better service)
3|Page
7. Ethical problem (Cheating, Unsafe) 8. Involuntary switching (customer moved, provider closed) 9. Dissatisfaction with present brand 10.Change in fashion 11.Promises made by competitors 12.Change in the perceived benefits 13.Personal characteristics of the customer concerned 14.Pressure of salespersons 15.Personal reasons Many of service switching factors mention above are controllable from a service organization?s point of view.
Retention Tactics:
1. Image/Promotion - community service, direct mail, educational offerings, health fairs, integrated marketing communications, newsletters, regular customer contact, informational materials, website. 2. Service Quality - continuous quality initiatives, convenience, customer service training, demonstrate that customers are highly valued, mystery shopping, customer representatives, service failure training, smile, treat customers as family. 3. Research - analyze defection rates/reasons, classify customers by usage/satisfaction/loyalty, develop targeted retention programs, “inside-out” (customer-focused) business model. 4. Internal Marketing - loyalty task force, prepare “solutions” to recurring problems, share appropriate customer data with staff, reward and publicize customer care customer of the month. 5. Customer-Centered - “dialogue” marketing, customer bill of rights, consumer care councils, understand customer expectations.
4|Page
Strategies for Customer Retention
(A) Complaint Management System
Any worthwhile complaints management system has to have following basic features: a) Visibility: Customer should know where to complain. b) Accessibility: Customer should know how to complain. As a rule of thumb, the more formal the system for lodging complaints, the less accessible it is to customers. c) Responsiveness: Complaints need to be dealt quickly. The quicker the complaints are dealt with, the higher the customer satisfaction. d) Customer-focused approach: A service provider who adopts customerfocused approach, invites complaints and indicates commitment of resolving complaints by its words and actions in all fairness. e) Accountability: Someone in the organization has to take responsibility for complaint handling. f) Continuous Improvement: This is about looking at the root causes and fixing them. A good complaint management system must ensure that that complainant is kept informed, the staff understands the complaint processes, complaints are taken seriously and employees are empowered to deal with situations.
(B) Service Recovery Strategies
Consider the following incident regarding an airline (British Airways). “An aircraft door was left open in a rainstorm before takeoff and a passenger near the door unfortunately got showered. The flight attendant not only did everything that was routine- offered to have the customer’s garments cleaned and made sure that a
5|Page
customer relations representative contacted the customer later to demonstrate that they genuinely cared- but also made special gesture by offering the passenger a complimentary choice of certain tax free goods.” It is very important for service companies to have service recovery strategies which can be applied in case of service failure. The following steps are useful in an effective service recovery system. 1. Measure the costs of effective service recovery. It should include the indirect cost also, when a customer departs unhappily. 2. Break customer silence and listen closely for complaints. 3. Act fast. 4. Train and empower employees. The front line people must be trained and empowered by the organization. 5. Close the customer feedback loop.
(C) Managing Customer Waiting
Sometimes, it is not possible to match demand & capacity, and hence waiting by customers becomes inevitable. While reducing waiting time is important for a marketer, it is equally if not more, important to reduce the customer?s perceived waiting time. If a customer?s perceived waiting time is less, he will be more satisfied with the service. Various ways of managing customer waiting are as follows: 1. The organization should analyze its operational processes in order to identify and remove inefficiencies or bottlenecks, if any. 2. In case waiting cannot be avoided, a reservation system can be used. 3. Since unoccupied time feels longer than occupied time, keep customer occupied by installing distractions that entertain and physically involve them. For example, TV sets, magazines reading material can be provided in waiting area.
6|Page
4. Provide „waiting duration information? i.e. information about the expected length of wait and/or „queuing information? i.e. a customer?s position in queue with continuous update. 5. If unexpected delays occur, explanation should be given to the customer. This helps in reducing uncertainty and customer irritation. The key is to impress upon the customer that he has not been forgotten. Simple things like providing a glass of water or a cup of tea to the waiting customer can do wonders. 6. Keep resources not serving customer out of sight. This can be done by keeping idle employees out of view and conducting activities that do not involve customer interactions out of customer?s sight. 7. Try to reduce pre-service waiting time by transferring some of the preservice waiting to the service encounter phase. 8. A smiling service person who knows his job well can be very helpful in overcoming many negative effects of waiting. Therefore, training and incentive/ rewards for providing good service should be made.
(D) Offering financial benefits to increase customer retention –
Financial benefits such as frequency programs as well as club memberships provide exclusivity to customers and therefore they are retained to the product / company.
(E) Increasing social bonds for customer retention –
Especially true for services sectors, increasing social bonds with the right cues helps the customer relate better with the service / product and therefore helps in developing social bonds with the company / brand. Once such social bonds are developed, the customer rarely shifts to another brand.
(F) Building structural ties for customer retention –
This strategy believes in making long term ties with the customers such that he is retained with the brand / product / company for a longer time. Sub strategies might
7|Page
including tying up for a longer time with the customer, charging lower prices or turning the service into long term.
With increasing competition in each sector, customer retention is becoming more and more important and therefore these strategies are increasingly being used by major organizations to retain customers.
Conclusion
Today?s customers are becoming harder to please. They are smarter, more price conscious, more demanding, less forgiving and they are approached by many more competitors with equal or better offers. The challenge is not to produce satisfied customers; several competitors can do this. The challenge is to produce delighted and loyal customers. If these customers are retained with the organization, they become really profitable by way of increase in purchasing, reduced operating costs, price premiums and through referrals. Too many companies suffer from customer churn i.e. high customer defection. It is like adding water to a leaking bucket. Various strategies such as measuring customer life time value, efficient complaint management system and service recovery strategies can be really helpful in retaining customers.
References:
1. Services Marketing, Valarie A. Zeithaml, Mary jo Bitner, Tata McGraw-Hill Publishing Company Limited, Third edition. 2. Wikipedia.com 3. Slideshare.com 4. www.scribd.com 5. www.authorstream.com
8|Page
doc_189491457.docx