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SEMINAR PAPER

ON

CUSTOMERS RETENTION: THE KEY TO


BUSINESS PERFORMANCE

PRESENTED BY

KAYODE Oladipupo Olayemi


A Research Analyst in Ibadan Oyo /Lagos State, Nigeria

08058573347/07063796484

JANUARY, 2019

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INTRODUCTION

As customers are the backbone of any business, firms without customers would not be
able to sustain their performance. This is because such firms are believed to have no
revenues, no profits and therefore no market value. Accordingly, managing customers is
deemed to be very crucial business agenda in which the key focus has been switched in
recent years from attracting new customers to preserving existing ones. Both
practitioners and scholars have discovered that it is much easier and cheaper to retain
the exiting customers than investing on the potential customers. A decent customer
retention level is believed to be a significant contributor towards improvement in the
overall firm performance (Barnes, 2011).

Recent scholars believe that some of the reasons while organizations in Nigeria failed to
retain their customers is because of their failure to ensure customer satisfaction,
removing switching barriers, encourage favourable price perception, customer loyalty,
service quality and render customer service.

In addition, organizations will easily know they are retaining their customers when there
are repeat purchases and positive word of mouth from the customers. Besides, non-
financial metrics were identified as the most appropriate measures for evaluating the
firm’s performance resultant of customer retention practice.( Roopa, and Imran 2012)

Therefore, this study explores the customer retention practices adopted by organizations
in Nigeria, the factors that retain customers and the subsequent impact of customer
retention practices on business performance.

New market condition sharpens completion. The number of competitor raises while at
the same time the services and products available on the market differ less and less at
their core. This has resulted in decreasing of customer retention and increasing cost to do
business. Companies are moving closer to their customers, expanding more effort in
finding new ways to create value for their customers and transforming the customer

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relationship into one of solution finding and partnering rather than one of the selling and
order taking.
Organizations have discovered and research studies have shown that retaining current
customers is much less expensive than attempting to attract new ones. Companies have
come to realized that proper service quality can potentially impact customer satisfaction
rating and can potentially lead to increase in customer retention.
Therefore, the research problem is to examine customer retention: the key to business
performance in an organization.

The main aim of this study is to examine customer retention: the key to business
performance in an organization. Specific objectives are to:

i. Examine the benefits of customer retention to business organization


ii. explore the relationship between customer satisfaction and customer retention
iii. examine impact of Service Quality on Customer Retention
iv. examine Customer Satisfaction as a Competitive Advantage
v. examine the impact of customer retention on organizational profitability

This seminar paper formulates three research questions to find solutions to the set
objectives:
1. What are the benefits of customer retention to business organization?
2. What is the relationship between customer satisfaction and customer retention?
3. What is the impact of service quality on customer retention?
4. Does customer satisfaction encourage competitive advantage?
5. What is the significant impact of customer retention on organization profitability?

To achieve the above objectives, the study adopts the following hypotheses:
Hypothesis one
Ho: There is no relationship between customer retention and customer satisfaction.
H1: There is a relationship between customer retention and customer satisfaction.
Hypothesis Two
Ho: There is no relationship between service quality and customer retention.
H1: There is relationship between service quality and customer retention.

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Hypothesis Three
Ho: There is no significant impact of customer retention on organization profitability.
H1: There is significant impact of customer retention on organization profitability.

This study focuses on examining customer retention: key to business performance in an


organization, using Fidelity Bank Plc, Ibadan as a case study. This is to enable the
researcher draw relevant conclusion from the study.

This seminar paper is expected to broaden the understanding of customer retention,


service quality and business performance in terms of profitability.

It will help to enlighten Nigerian organizations so that they can know how to render
effective services that will satisfy their customers. Although many scholars have
ascertained the fact that service quality and customer satisfaction have positive effect on
customer retention but very few have been to explore and highlight the variables that
constitute retaining customers in the Nigerian banking industry

This seminar paper will facilitate further studies by other researchers who have an
interest in understanding the link among customer retention, service quality and business
performance in terms of profitability.

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LIETRATURE REVIEW

Who Is Customer?

A party that receives or consumes products (goods or services) and has the ability to
choose between different products and suppliers. See also buyer. A customer is an
individual or business that purchases the goods or services produced by a business.
Attracting customers is the primary goal of most public-facing businesses, because it is
the customer who creates demand for goods and services. Businesses often compete
through advertisements or lowered prices to attract an ever-larger customer base.(Roopa,
and Imran 2012)

Meaning of Retention
Retention can be defined as “a commitment to continue to do business or exchange with
a particular company on an ongoing basis''. (Douglas 2015). A more elaborated
definition is to define retention as the customers' liking, identification, commitment,
trust, willingness to recommend, and repurchase products and services, with the first four
being emotional-cognitive retention constructs, and the last two being behavioural
intentions. (Gronroos, 2014).

Meaning of Customer Retention

Customer retention is an effort carried out by companies to ensure that its customers do
not switch over to competitors’ products and services. It is of paramount importance to
retain highly profitable ones. A good loyal customer base that persists for a long time is
one of the best advertisements for a business, creating an image of high quality. This
helps in attracting other customers who value long term relationship and high quality
products and services. (Gengeswari, Padmashantini, and Sharmeela-Banu, 2013).
Retaining old customers also costs less than acquiring new ones. The company knows
the customers and what they want, and the initial costs of attracting the customers have
already been expended. Old customers also pay less attention to competing brands and
advertising, are less price sensitive and create favourable word-of-mouth.

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Basic Ways Of Retaining Customers To Enhance Business Performance

Sultan (2011:6) claimed that the following techniques should be used in retaining
customers in business organizations in Nigeria:
Fig: 1: Proposed Model for Enhancing Customers Retention

Source: Burke (2015:8)


 Customer Satisfaction: customer satisfaction is the key influencing factor of
customer retention practice. Customer satisfaction is defined as a sense of comfort
and attachment that results from achieving customer’s expectation and
anticipation. Lin, Weng, & Hsieh, (2013:109). Customer satisfaction can be also
described as a pleasant experience that creates an emotional bond between a
customer and the firm. Customers with greater satisfaction level would frequently
buy in larger volume besides acquiring new products from the same provider.
Mulindwa, (2015:54). They are also known for spreading news about their
favorable experiences among their social circles.
 Pricing: Reasonable price is one of the essential ways to create and maintain a
satisfied customer. Perception on the pricing technique, Price fairness couple with
low pricing setting are the keys to retaining one’s customers. (Burke 2015:5).
 Customer Loyalty: Customer loyalty denotes as the sense of bonding that a
customer has towards a firm and its offerings which enhances their stay with the
firm Gronroos, (2014). Customer loyalty revealed that there is Sense of bonding,
tendency to stay longer, Increase purchase. Attitude of loyal customers certainly
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favor the firm as the loyal customers will stay longer and increase their purchases
besides being customer evangelists. Customer’s perception towards firm’s
performance is also seen as a catalyst in satisfying customers as it is believed that
customers who are satisfied and contended with the firm’s performance would be
loyalists of the firm. (Nataraj, 2010).
 Customer Service: customer service” is synonymous with “interactive quality”,
which relates to the interaction between customer and service personnel.
Satisfying customer service has a significant impact on firm’s retention tactics.
Customer service is described as the provision of add-on services for firm’s
merchandises despite the nature of its offerings. It also means understanding
customers’ needs. Gronroos, (2014:9). Besides, Sultan (2011:6) had highlighted
the importance of two-way communication between customer and firm’s
personnel in augmenting the quality of add-on services provided. Burke (2015:7)
had claimed that the improvement in customer service would subsequently
enhance customer’s satisfaction.
 Perceived Service Quality: Burke (2015:8) also pointed out that service quality
is the result of the comparison made by customers about what they feel
organizations should offer, and perceptions of the performance of organization
providing the services. Service quality in terms of well skilled employees, quality
in terms of good facilities and equipment, quality in terms of good administration
staff who are efficient in administration, quality in terms of service delivery and
research output and so on
The Impact Of Customer Retention Practice On Business Performance

i. Increase Revenue and Profitability: Firms would not be able to uphold and
increase their performance without customers as firms are believed to have no
revenues, no profits and therefore no market value. Ang and Buttle, (2006:7).
Furthermore, Douglass (2013:6) claimed that firms can increase profits by 25
to 95 percent with a mere increase of 5 percent in customer retention rates.
Thus, it is wise to conclude that a small increase in customer retention rate
will further accelerate firm’s profits.

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ii. Increase Competitive Advantage: Saturated markets and high levels of
competition within industries have necessitated the practice of customer
retention strategies among firms. Douglas (2015:7). Organization who
strategically retain her customers will have competitive edge compare to other
organizations.
iii. Reduction in New Customers Recruitment Expenses: It has been
discovered that recruiting new customers is essentially a costly affair as
compared to retaining the existing customers. Accordingly, the practice is
believed to enable the firms to sustain in the said intense competition besides
enjoying significant savings from retaining existing customers. This is
supported with past studies, which ascertained a significant relationship
between improvement in firm performance and customer retention practice
Mulindwa, (2015:61).
iv. Improvement in the Overall Company Performance: Mulindwa, (2015:64)
indicates that firm performance is normally associated and computed using
either accounting or financial expressions where profit, operational costs and
market share are amongst the most common measures used to assess a firm’s
financial performance (FP). Nevertheless, both recent researches by
practitioners and academicians claim that firm performance should not be
assessed solely based on the financial dimensions. Hence, consideration on the
non-financial performance (NFP) metrics customers retention strategies is also
equally important in measuring the performance of firms particularly within
the service sector. Lin, Weng, & Hsieh, (2013:124).

Impact Of Service Quality On Customer Retention


Customer retention is an effort carried out by companies to ensure that its customers do
not switch over to competitors products and services. It is of paramount importance to
retain highly profitable ones. A good loyal customer base that persists for a long time is
one of the best advertisements for a business, creating an image of high quality. This
helps in attracting other customers who value long term relationship and high quality
products and services. Inamullah, (2012:5). A number of studies have identified the
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benefits of retention to an organization. Rizal and Francis (2010) For example, the longer
a customer stays with the organization, the more utility the customer generates. This
utility is the outcome of the number of factors relating to the time the customer spends
with the company including the higher initial cost of introducing and attracting a new
customer, increase in the value of purchase, increase in the number of purchases, and
customer better understanding of the organization.

Chacha, (2016) claimed that in the retention of customer, it is important for firm to know
how to serve their customers. Post sales services are the important drivers for customer
retentions. It is important for product/service provider to emphasize on the quality of
product and service. As it is stated that there is statistically significant relationship
between quality, commitment, trust and satisfaction and customer retention and future
use of product, as retention is influenced by future use of product.

Boulding (2005) argued that his finding extend previous research that there is solid
relationship between customer retention and quality of service/or product. It was
examined that loyalty program with monetary compensation are steps toward great
customer retention. Evidence is available in previous literature that emotional
commitment and loyalty program that gave financial incentives have positive impacts on
customer retention. Different studies have examine the relationship of customer retention
and customer loyalty in different context some have studied it as there is positive
relation, other have studied that they have negative relation, while evidence exist that
there is no relation between them.
It has been suggested in literature that the cost of customer retention activities are less
than the cost of acquiring new customer. In today’s highly competitive business
environment, while gaining new customers is good news, the flip side is the loss of
customers through defection. Some of the concepts that have been used to explain why
customers leave or stay with an organization are customer satisfaction and quality
service. All successful companies must learn how to retain customers even when the
customer appeared satisfied. According to Rizal; and Francis (2010), some unsatisfied

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customers may choose not to defect, because they do not expect to receive that better
service delivery elsewhere and vice versa.
However, retention should not be taken for loyalty. Loyalty is valid when customers have
options to choose from. As such, service providers should understand why customers
choose to stay and should not assume that it is a positive conscious choice. This is
because, they may be lured away by attractive offers made by competitors when they
experience dissatisfaction in the products or services. There are strong arguments for
management to carefully consider the range of factors that increase customer retention
rate. (Rizal and Francis 2010)

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SUMMARY, CONCLUSION AND RECOMMENDATIONS
Summary Of Findings
This seminar paper revealed that the customer retention is a way of providing customer
value, high level of customer satisfaction, reduction in operation cost, profitability... Etc.
The finding proved that business organizations in Nigeria can also benefit from customer
retention strategies. For example, the companies studied high level of customer’s
satisfaction and retention, high performance in terms of sales volume and profitability.

Conclusion
This seminar paper concludes that customer retention practice is very vital for firms to
move beyond satisfying both existing and new customers where the practice is proved to
be an important tool to improve firm’s performance particularly from their non-financial
aspects.
However, service quality has attracted the expanded attention of practitioners and
scholars. More and more companies are adopting customer-centric strategies, programs,
tools, and technology for efficient and effective customer relationship management. They
are realizing the need for in-depth and integrated customer knowledge in order to build
close cooperative and partnering relationships with their customers. Customers
continuous use of services provided by an organization that both long and short term
financial benefit will be derived. In spite of some companies in Nigeria are not practicing
Customer retention strategies, there is a need for it to be initiated and maintained to
create trust between the customer and organization. (Bassey, Okon and Umorok, 2011)

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Recommendations
This seminar paper recommended that:
 There is the need to constantly monitor and evaluate the current customer retention
strategies of the organization. It is necessary to constantly monitor, review and
evaluate the current strategies being adopted by the organization. This will provide
the organization with constructive feedback with regards to the customer retention
strategies in order for it to realize its maximum benefits.
 Customers should be consulted before introducing these strategies since they are the
reason why it is being implemented. This will make the customers know how much
they are needed by the organization and if this call for participation, a larger
percentage will get involved as they will want to contribute to the decision making
process.
 The organizations should use the analytical methods of profiling and gaining
knowledge from their customers on their activities, which will enable them to have a
one-to-one relationship and consequently better delivery of products and services.
 For successful customer retention strategies, the practice should become a

compulsory management tool for organizations to sustain in the competitive


environment. The findings of this study alongside the implications given are expected
to enlighten the practices of customer retention within the Nigeria business
environment.

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