Chapter 4

Managing the Customer Journey

In this chapter, the main idea that has been focussed is on how the customer is retained,
developed and strategies on how this situation can be controlled/managed. The first
question that arises will be what is customer retentions and customer development.
Customer Retention: how to keep the valued customer by decreasing customer deflection.
Customer Development: increasing the value of the retained customers.
Three basic questions must be answered by the company when they implement customer
retention strategy.
 Which customer will be are to be focused or aimed?
 Strategies’ to retain customers?
 How will we measure customer retention performance?

For instance, if we look at RBC’s tie-up with Petro-Canada, for every time you use you RBC
card you get 3 cents off the gas price from any Petro-Canada gas station. In this way both
the companies are making fortune by retaining the customer as well as developing them by
giving them intensively on the purchase.

In many companies, there are times where the customer has defected but the firm is unable
to answer to why does that happen. In this case, the majority of the company spend
resources on marketing and lose a lot of capital instead of retaining customers. This led to
three measure of customer retention or how the rate of deflection can be controlled:
 Raw Customer Retention Rate: active customer doing business with the company at
the end of the period to those who were active at the beginning of the period
expressed in percentage.
 Sales Adjusted Retention Rate: it is the sales from the retained customer to the ones
at the beginning of the year expressed in percentage (in short it is the sales value of
the raw customer retention rate)

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  Profit – Adjusted Retention Rate: the profit earned from the retained customer to the
ones at the beginning of the year (the profit value of the raw customer retention
rate)
From the above, we can say that sales and profit retention rate purely depend on the raw
customer retention rate. That means that the above their factor are dependent on each
other in term of the retention rate. This discussion follows us to aim at a retained customer
that are valued to the firm mostly in term of the share of the company.

The economics of customer retention mainly focussed on the four points i.e.:

 Purchasing as tenure grows: building relation and trust with the increase in the
purchase by the customer. For example, many people prefer to go to the same bank
for their mortgage and insurance as they develop deeper intimacy as time prolongs.
 Customer Management Cost Over Time: decreasing the cost and to increase
customer management.
 Customer referral: the belief of others on how the product and services. For instance,
if we go to a restaurant, we always tend to check the review if the food, ambience
and price were satisfactory. This intent increases retaining the new customer as
they trust is built.
 Prices: this can be said as better product give higher rewards. The willingness-to-
pay comes in demand when the customer is satisfied by their supplies.

The various strategies of customer retention are used in term to attracted and develop
customer relationships. Negative Retention strategy means that hidden cost that affects the
customer to switch from something that they dislike. Therefore, many customers still
acquire the given firm as the switching cost is way too high even though they are unwilling
to be with them.
Positive retention mainly deals with building customer relation and development of the
business. There are four forms of positive retention:

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Customer engagement: this means higher involvement of customer into the organization. In
this case, the firm will know how well they are doing and what are the areas of
improvement. For instance, when we travel in Air Canada, they usually ask us to fill out a
form during the end of the journey rating them on their product and services which help
them improve their system enhancing more customer. They sometimes give reward to
customer who has faced a lot of issues for them to save their name in the market.

Understanding Customer Expectation: It takes a year to build a customer relationship and

trust whereas not even a minute to break it if their needs are not met. This mainly happens
in a cell phone provider industry. Just to keep the long-term customer they provide them
with a deal that just breaks even the cost in term to meet there need so that they don’t go to
another provider to fulfil their requirement.
This can be explained well with the Kona’s Customer Delight Model.

KONA’S MODEL FOR CREATING CUSTOMER DELIGHT

The above graph explains based on the customer being happy where they are attractive
qualities are met and their linear qualities are on the same page. The lower we go on to the
qualities the inadequate it becomes and dissatisfied the customer. The above graph is for
basically for product industries but can also be applied to service industries by increasing

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attractive service quality and customer satisfaction. This means that the company’s wants
and the customer need if come to gather the happier the customer.

Customer-perceived value: how customers prolonged experience added value to their

products and services. There are three forms by adding value: loyalty Scheme, Customer
Communities and sales promotion. Firstly, the loyalty scheme is about giving higher reward
to the customer when they make the most use of the service provided by the company.
Consider Petro Canada points card they more you use the service by that gas station higher
the point you get which after a particular value there into dollar amount say 1,000
point = $1. Customer communities such club and organization are values that exclusively
benefit the member. For instance, a local community centre will have higher club member
fees but will eventually benefit them as the value of it increases with that cost and the rate
of return is higher. Sales Promotion are temporary ways in which customer enhancement
is achieved. These are cashback card, gift voucher and subscribe to win kind of offers that
attract them for them to back and make another purchase from the firm.

Bonding: There are two types of bonding for a B2B type of firm. These are as follows:

Social Bonding: This means the relationship between people. This could personal,
geographical or even depending on the size of the frim to not dispute. These are sometimes
emotional due to which higher level of trust is involved in a business. In context to that
lower level of trust in the partner integrity and competence lead unlikely commitment of
resource.
Structural Bonding: These are bonds that are materialist which a company and
customer have with each other. They mainly deal with the company has invested in
improving the joint venture of the quality of compliance. There is various kind of structural
bond-like financial, legal, equity, knowledge, technological, process, and geographical,
project multi-product and value-based.
In terms of bonding, it can be said that personal bonds are easier to break than the
structural bond.

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In addition to all strategic retention measure, a very important term to measure the
performance has been discussed in this chapter which is Key Performance Indicator
(KPIs). This check on how effective the firm is doing and evaluate its success rate targets.
These measures are taken in three types:

 Outcome Related KPIs: retention based on customer satisfaction, customer equity,

sales retention rate etc.
 Process Related KPIs: Retention based on customers performance.
 Cost Related KPIs: retention based on the cost to satisfy customers.

Customer Development Strategies which enhance the value of the retained customer. This
can be achieved in either by cross-selling or upselling product or services. For example,
when we go to a gas-station they always have a strategy to upsell when we go to the store
like if you get a bag of ice it will cost $3.50 but when you get ice with a bottle of coke it's
$4.00. This intend is developing value to the customer and retaining new ones.

Customer Termination Strategies

On the other side of customer retention, the strategies to terminate customer relation has
been discussed in this chapter. This is done to provide profitable to the customer by
divesting customer that play strategically with the company i.e. buy only when discounts,
wait for the sale, benefit the promotion etc. Therefore, companies have a number of
strategies to manage unprofitable customers:

 Increase the price to make it profitable

 Unbundle or reprice the offers
 Redesign products
 Rework on sales, marketing and service of the firm

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