A distinction exists between
strategies that lock the customer in by penalizing their exit from a
relationship, and strategies that reward a customer for remaining in a
relationship needs understanding in the retention scenario. The former are generally considered negative,
and the latter positive customer retention strategies. Negative customer retention strategies impose
high switching costs on customers, discouraging their defection.
Negative customer retention strategies
In the business to consumer
context, mortgage companies have commonly recruited new customers with
attractive discounted interest rates.
When the honeymoon period is over, these customers may want to switch to
another provider, only to discover that they will be hit with early redemption
and exit penalties. Customers wishing to
switch retail banks find that it is less simple than anticipated; direct debits
and standing orders have to be re-organized.
In the business to business context, a customer may have agreed to a
deal to purchase a given volume of raw materials at a quoted price. Somewhere
through the contract, a lower cost supplier makes a better offer. The customer wants to switch, but finds that
there are penalty clauses in the contract.
The new supplier is unwilling to buy the customer out of the contract by
paying the penalties.
Positive customer retention strategies
In the following sections we look
at a number of positive customer retention strategies, including creating
customer delight, adding customer-perceived value, creating social and
structural bonds and building customer engagement.
Customer delight
It is very difficult to build
long-term relationships with customers if their needs and expectations are not
understood and well met. It is a
fundamental precept of modern customer management that companies should
understand customers, and then acquire and deploy resources to ensure their
satisfaction and retention. This is why
CRM is grounded on detailed customer-related knowledge. Customers that Sales Pros are not able to serve well may be better served by their
competitors.
Delighting customers, or
exceeding customer expectations, means going beyond what would normally satisfy
the customer. This does not necessarily
mean being world-class or best-in-class.
It does mean being aware of what it usually takes to satisfy the
customer and what it might take to delight or pleasantly surprise the
customer. Sales Pros cannot really strategize to delight the customer if they
do not understand the customer's fundamental
expectations. Sales Pros may stumble onto attributes of their performance that do
delight the customer, but they cannot consistently expect to do so unless they
have deep customer insight. Consistent
efforts to delight customers show their commitment to the relationship. Commitment builds trust. Trust begets relationship longevity.
Customer delight occurs when the
customer's perception of their experience of doing business with you exceeds
their expectation. In formulaic terms:
CD = P > E
Where CD = customer delight, P =
perception and E = expectation.
This formula implies that
customer delight can be influenced in two ways: by managing expectations or by
managing performance. In most commercial
contexts, customer expectations exceed customer perceptions of performance. In other words, customers can generally find
cause for dissatisfaction. Sales Pros might think that this would
encourage companies to attempt to manage customer expectations down to levels
that can be delivered. However,
competitors may well be improving their performance in an attempt to meet
customer expectations. If the Sales Pro’s strategy is to manage
expectations down, they may well lose customers to the better performing
company. This is particularly likely if
you fail to meet customer expectations on important attributes.
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