This column is adapted from Enterprise One to One: Tools for Competing in the Interactive Age (Currency/Doubleday, 1997). There are four strategies for improving customer retention ­ each effective in its own way, depending on the nature of the customer base and the capabilities of the enterprise.

Customer Recognition.
Why not "recognize" valuable customers with some sort of special treatment? The elements of a customer recognition program should be both personal and practical. "Best-interests" marketing is an effective element to include in any customer recognition program. "Best-interests" marketing requires that a customer's best interests be put at the forefront of whatever policy or marketing program is being executed. For example, phone companies and banks should regularly review the accounts of their most valuable customers in order to recommend the best plan for each customer. "Best-interests" marketing requires personal care and attention ­ not a standardized one-size-fits-all program. The enterprise that practices "best-interests" marketing will infuse its culture with the principle that the customer comes first, above everything else.

Loyalty Purchasing.
Another way to increase customer retention is, as the name implies, purchasing customers' loyalty. Frequent flyer programs are loyalty purchasing programs. These programs are good examples of how to achieve greater customer loyalty as individual customer volume increases. These programs provide customers with special services and make it more attractive for the customer to stay with the airline, rather than moving to a competing airline. While buying customer loyalty is often a firm's first line of attack when faced with customer attrition, this tactic has limited long-term value. Organizations with programs similar to airline frequent flyer programs would develop longer lasting loyalty by developing "Learning Relationships" with customers based on remembering each customer's individual preferences and customizing services to match these needs.

Product Quality and Customer Satisfaction.
Customers will not continue to use a bad product. Therefore, it is necessary to have product quality at least on a par with the competition. Customer satisfaction is, obviously, the opposite of customer dissatisfaction. By itself, customer satisfaction is usually not enough to generate loyalty. Many organizations measure their CSI (customer satisfaction index), asking their customers to rate the product and indicate their level of satisfaction. Some companies even incorporate CSI into the overall management of the business, comparing one division to another, current year to previous years, etc. However, studies have shown that customer satisfaction can be correlated with customer loyalty only if it is measured relative to the competition.

For example, when AT&T began examining customer satisfaction more than a decade ago, it was determined that customer satisfaction scores apparently had no correlation to market share, growth or profit. While customer satisfaction for one product in the Pennsylvania market received customer satisfaction scores of 97 percent, the same product in New York was only receiving scores of 78 percent customer satisfaction. However, New York was gaining market share while Pennsylvania was losing it. Explaining these seemingly contradictory figures, AT&T reached three conclusions:

  • The only kind of satisfaction that really counts is "very satisfied."
  • While price contributes to the overall value proposition, other factors (ranging from service quality to responsiveness) also play a role in determining a customer's relative satisfaction.
  • Customer satisfaction is useful for explaining business results only when measured relative to the competition's scores.

AT&T's research showed that when relative customer satisfaction was measured, the correlation with business performance was remarkable. This research also explained the New York-Pennsylvania paradox ­ New Yorkers are predisposed to be more demanding and less forgiving than Pennsylvanians. But if New Yorkers rate AT&T's competitors lower than they rate AT&T, market share growth will still occur.
Customization and Collaboration.
The most effective strategy for keeping customers is the "Learning Relationship" based on individual customer collaboration and customization tactics. When a customer is committed to the enterprise (relative to its competitors), reliable and dependable customer retention occurs. This is most effectively achieved through the collaborative linking of individual customer feedback to the customization of services and products. An organization that can convince customers to spend time teaching the firm how to cater to his/her individual tastes will keep those customers loyal for a longer period. The more time customers spend in this process, the more trouble it will be for them to obtain the same level of customized service from a competitor.

"Learning Relationships" are based on the simple idea that when customers spend time teaching the vendor, those customers develop a stake in the benefits of this learning. Having invested what may be a significant amount of time and seeing concrete proof that their input makes a difference in products and services, these customers are less likely to defect to a competitor.

Register or login for access to this item and much more

All Information Management content is archived after seven days.

Community members receive:
  • All recent and archived articles
  • Conference offers and updates
  • A full menu of enewsletter options
  • Web seminars, white papers, ebooks

Don't have an account? Register for Free Unlimited Access