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Customer Relationship
Management Strategies in
the Digital Era

Süphan Nasır
Istanbul University, Turkey

A volume in the Advances in Marketing, Customer

Relationship Management, and E-Services
(AMCRMES) Book Series
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Nasir, Suphan, 1978-
Customer relationship management strategies in the digital era / by Suphan Nasir.
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Summary: “This book blends the literature from the fields of marketing and information technology in an effort to exam-
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244

Chapter 9
Customer Retention Strategies
and Customer Loyalty

ABSTRACT
Since loyal customers are the most important assets of a company, companies have been giving attention
to developing customer retention and loyalty programs. The fundamental purpose of customer retention
efforts is to ensure maintaining relationships with value-adding customers by reducing their defection
rate. Creating customer loyalty is essential for the survival of the company in highly competitive markets.
Thus, this chapter starts with indicating the significance of customer retention marketing strategies for
the company by revealing the economics of retention marketing programs. Requirements for developing
effective customer retention strategies are explained. Finally, after discussing types of commitment, this
chapter ends by explaining loyalty programs and win-back strategies.

INTRODUCTION Retention marketing strategies provide many

Relationship marketing becomes an essential
strategic tool for companies in today’s dynamic
market in which customer needs and preferences
are changing rapidly. These rapid changes that
take place in almost all business types, increase
the importance of relationships, and highlight
the need to enter into networks of relationships.
Thus, companies have been increasingly focusing
on developing long term profitable relationships
in business, internal and consumer markets in
order to enhance the value that they deliver to
their customers.
benefits to the company because loyal custom-
ers increase their spending at an increasing rate,
purchase at a full margin rather than at discount
prices, and create operating efficiencies (Reich-
held & Sasser, 1990). Moreover, acquiring new
customers such as new account setup, credit
searches, advertising and promotional expenses
is costly compared to retaining a customer. The
relationship startup costs that are incurred when
a customer is acquired are quite high and it may
take several years to gain profit from the rela-
tionship to recover those acquisition costs. The
account becomes more profitable and relationship

DOI: 10.4018/978-1-4666-8231-3.ch009

Copyright © 2015, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.

Customer Retention Strategies and Customer Loyalty
maintenance costs may eventually decrease as the
relationship between the company and customer
deepens over the time. Besides, customers who
are satisfied with the company are more willing
to pay higher prices because they get their sense
of value from more than price and in an estab-
lished relationship they are also likely to be less
responsive to price appeals offered by competitors
(Buttle, 2009).
The below statistics also reveal and support
the economics of retention marketing programs:
• Customer profitability tends to increase
over the life of a retained customer be-
cause they buy more as their trust increase
(Murphy & Murphy, 2002).
• 80% of the company’s future profits come
from just 20% of its existing customers
(Murphy & Murphy, 2002).
• A 5% decrease in customer defection rates
can increase profits by 25% to 125 depend-
ing on the industry (Murphy & Murphy,
2002).
• A 2% increase in customer retention has
the same effect as decreasing costs by 10%
(Murphy & Murphy, 2002).
• Repeat customers spend on average 33%
more than new customers (Retail Active,
2008).
• Referrals among repeat customers are
107% greater than non-customers (Retail
Active, 2008).
• 86% of consumers will pay up to 25%
more for a better customer experience
(RightNow, 2011).
• According to the Marketing Metrics, the
probability of selling to an existing cus-
tomer is 60–70%; while the probabil-
ity of selling to a new prospect is 5–20%
(Charlton, 2012).
• According to the White House Office of
Consumer Affairs, it costs six to seven
times more to acquire a new customer than
retain an existing one (Hisaka, 2013).
As those statistics demonstrate, companies that
are going to effectively develop and manage cus-
tomer retention strategies can achieve a competi-
tive advantage, healthier profits and an admirable
reputation. There is strong evidence that customer
retention yields commercial benefits; because of
that reason companies try to enhance customer
lifetime value. Customers want to maximize
their benefits when they enter into a relationship.
Thus, when the customers believe the profitability
of the relationship, they establish and maintain
ongoing relationships with a company. Custom-
ers are more likely to enter into a relationship
when the future value of the relational behavior
is high. The future value of the relationship will
be high, if the relational behavior provides high
perceived benefits due to customization, superior
service, outstanding customer experience, product
bundling and so on, and/or lower costs due to the
reduced mental processing, search costs, and risks
associated with the purchasing (Bhattacharya &
Bolton, 2000). Receiving outstanding customer
experience increases the perceived value of the
relationship for the customer. It is important to
note that companies that prioritize delivering
excellent customer experience can generate 60%
higher profits than their competitors. Moreover,
strict adherence to delivering customer experience
results in up to 25% more customer retention and
revenue than sales or marketing initiatives (Mur-
phy & Murphy, 2002).
Future value of the relationship as well as
the customers’ trust in the organization affect
the customers’ decision to maintain or withdraw
from a relationship (Blois, 1996). Better Business
Bureau (BBB)/Gallup Trust in Business Index
2007 survey finds that nearly one in five (18%)
adult American consumers says his trust in busi-
nesses that he regularly deals with has decreased
in the past 12 months. The findings of the survey
indicate that 93% of American adult consumers
rate company’s reputation for honesty and fairness
as extremely or very important to them; while
91% of respondents find company’s reputation for
245

Customer Retention Strategies and Customer Loyalty
being both dependable and reliable is extremely
or very important in order to trust in a company
(BBB, 2008). In the light of the findings, it can be
argued that companies that want to establish trust,
need to be honest, fair, dependable, and reliable.
Customers switch from the company for many
reasons such as high, unfair and deceptive pricing,
inconvenience (e.g., wait for service), core service
failure (e.g., service mistakes, billing error), ser-
vice encounter failure (e.g., impolite, uncaring,
unresponsive staff behaviors), response to service
failure (e.g., negative, no, reluctant), competition
(e.g., availability of better alternatives), ethical
problems (e.g., unsafe, cheating) and involun-
tary switching (moving) (Rai, 2012). Customer
switching has negative effects on market share
and profitability (Rust & Zahorik, 1993). Cus-
tomer switching means loss of customers’ future
revenue stream. According to the Get Satisfaction
Infographics, globally, the average value of a lost
customer is $243 and $83 billion is the cost of
poor customer service in the US (Azita, 2010).
Knowing what drives customer loyalty is
important for the company’s financial health
because repeat purchases and new customer re-
ferrals generate continuous revenue streams for
the company. Creating cult brands contributes the
customer loyalty. Establishing strong excellent
relationship with customers, makes cult brands
special. Therefore companies need to focus on
creating cult brands. Cult Brands are a special
class of magnetic brands that command super-high
customer loyalty and almost evangelical customers
or followers devoted themselves to the company.
Cult brands create customers who love them so
much that they won’t do business with anyone else.
Cult brand can be any product, service or brand
that creates high level of loyalty. Cult brands are
vehicles that serve brand lovers’ human needs. Cult
brands fulfill the need for belonging by creating
strong customer communities. Cult brands do not
just offer great products and services, they provide
social interaction, esteem, and self-actualization.
They make customers believe that the brand has
246

no equal. Cult brands become integral to their
customers’ live by linking their products and ser-
vices to higher level needs of Maslow’s hierarchy.
Cult brands enjoy intense loyalty because they
work hard to connect with their customers at the
very highest level of Maslow’s Hierarchy. So it is
important to create devoted customers. Devoted
customer sticks with the brand, spends more, and
makes positive word of mouth.
Managing customer relationships provides a
source of competitive advantage to the firms. A
relationship develops between a customer and or-
ganization when there are benefits to both parties.
Building a long-term relationship is appropriate
only in circumstances where both the customer
and the seller are convinced of the profitability of
the relationship (Blois, 1996). Developing strong
bonds with customers are typically characterized
as customer retention programs (Bhattacharya &
Bolton, 2000).
CUSTOMER RETENTION
STRATEGIES
Since loyal customers are the most important assets
of the company, in recent years, companies have
been increasingly recognizing the importance of
loyal customers and they have been giving atten-
tion to develop customer retention and loyalty
programs. The fundamental purpose of customer
retention efforts is to ensure to maintain relation-
ships with value-adding customers. A customer
retention strategy aims to retain valuable customers
by reducing their defection rate; while a customer
development strategy aims to increase the value
of those retained customers to the company by
making cross-selling and up-selling to them, and
encouraging them for making word of mouth
communication and customer referrals. Customer
acquisition strategy of the company focuses on
attracting profitable prospective customers. Just
as in the customer acquisition, customer retention
and development strategy of the company also

Customer Retention Strategies and Customer Loyalty
focuses on retaining particular customers. Focus
is necessary because not all customers are worth
retaining and not all customers have potential for
development. Therefore, it may not be beneficial
to maintain relationships with all customers; es-
pecially with the customers who are too costly to
serve. Companies require to focus their customer
retention efforts on those who have profit potential
or are strategically significant. The strategic im-
portance of a customer can be determined by the
value and/or volume of the customer’s purchases,
the prestige of the customer, and potential of the
customer in providing access to new markets/
customers, and the customer’s impact on other
relationships (Fiocca, 1982). Companies have
to focus on the most profitable customers; but
they should also focus on attracting and retaining
customers who will act as advocates for the com-
pany’s growth and encourage others to buy from
the company. By assessing customer profitability
and customer advocacy, company can tailor its
retention strategies and invest in specific customer
segments (Allen, Reichheld, & Hamilton, 2005).
Understanding customer needs and prefer-
ences, meeting and even exceeding customer
expectations, and delivering the high customer
value lead to customer satisfaction. Customers,
who are satisfied, are more likely to become loyal
and demonstrate behavioral and/or attitudinal loy-
alty. Companies that have a loyal customer base
enjoy with high business performance, and achieve
increase in revenue growth, share of customer, and
customer commitment. Satisfied customers keep
doing business with the company, and over time
customers’ trust begins to grow. As customers’
trust grows over time, customers’ commitment
as well as spending increases; because customers
prefer to do business with companies with whom
they have a proven and satisfactory relationships.
They do not want to take risks. Moreover, loyal
customers are more likely to make positive word
of mouth about the company and try to encourage
other customers to do business with the company.
Loyal customers become referrers (Buttle, 2009).
Repeat purchases and new customers from refer-
rals generate continuous revenue stream for the
company. Thus knowing what drives customer
loyalty is important for the company’s financial
sustainability. If the company wants customers
who bring the company more business and advo-
cate for the company, the company needs to dem-
onstrate that it knows and cares its customers and
rewards customers for their commitment (Rogers
& Gilleland, 2009). Service quality, relationship
quality, and overall service satisfaction are among
the factors that improve customers’ intentions to
stay with a firm (Bose & Bansal, 2001). A com-
pany can maintain customer retention and loyalty
through customer satisfaction, superior service,
loyalty programs, defection analysis, complaint
handling, mass customization, customer targeting
and database marketing.
Companies implement retention marketing
practices in attempt to increase customers’ com-
mitment to the company. As the commitment
of the customers’ increases, customers become
more loyal. If the customers are satisfied with
the product and the services that are provided
by the firm, they will become loyal customers.
Therefore, companies try to achieve customer
satisfaction by exceeding the customers’ expec-
tation and delivering superior customer service.
The key to generating high customer satisfaction
is to deliver high customer value. Companies must
aim for high satisfaction (performance of the firm
must exceed the expectations of the customer)
because high satisfaction creates an emotional
bond with the firm and in turn, this will lead to
customer retention.
Bringing together the customer service quotes
of worldwide known CEOs can inspire and guide
companies in delivering outstanding customer
service (Brookes, 2013). Merely satisfying cus-
tomers is not satisfactory to achieve customers’
loyalty. They have to experience exceptional
service that will be worthy of their repeat busi-
ness and referral. Since profit in business comes
from repeat customers who are delighted with
247

Customer Retention Strategies and Customer Loyalty
the company’s products and services, and bring
their friends with them. Therefore, the purpose
of a business is to create a customer who creates
customers. Great service helps companies drive
the customer acquisition, retention, and efficiency.
This makes the leading companies successful.
If you make customers unhappy in the physi-
cal world, they might each tell 6 friends. If you
make customers unhappy on the Internet, they
can each tell 6,000 friends. Since bad customer
service causes customer lost and negative word
of mouth, good customer service costs less than
bad customer service. The customer experience
is the next competitive battleground; because of
this reason, companies need to understand what
customers appreciate and deliver what they need.
This is possible by engagement. The more the
company engages with its customers the clearer
things become and the easier it is to determine
what the company should do.
To secure customer loyalty, it is also important
to measure customer satisfaction. It is expected that
meeting or exceeding the customers’ expectations
leads to customer satisfaction and as a satisfied
customer, they would continue to do business with
the company. However, it is indicated by Jones and
Sasser (1995) that there is a tremendous difference
between merely satisfied customers and totally
satisfied customers. For instance Xerox Company
realizes that its merely satisfied customers are six
times less likely to buy again from Xerox than its
totally satisfied customers (Jones & Sasser, 1995).
Therefore, it is important to focus on creating
delighted and devoted customers for ensuring
customer loyalty. Companies should include sys-
tematic customer satisfaction measurements into
their customer retention management programs.
Companies can use a variety of measurement
methods to measure the customer satisfaction such
as customer satisfaction surveys, feedback forms,
and customer service feedback. Customer satisfac-
tion should not be used as only one metric to track
customer loyalty. Companies should consider and
measure a range of customer satisfaction metrics
248

to understand their customers’ degree of loyalty
better. Companies can measure customer loyalty
by considering customers’ repurchase intention
in the future, primary behavior (e.g. recency,
frequency, and amount are measures of actual
behavior and indicates the change in behavior
over time), and secondary behavior (e.g., the
potential of making customer referrals) (Jones &
Sasser, 1995). Companies that want to measure
customer satisfaction need to track the following
metrics (Beard, 2013):
• Customer Expectations versus
Perception: It is important to measure
whether the company’s product or service
meets the expectations of customers.
• Likelihood to Recommend to Friends:
To track the customer loyalty, company
needs to know the customers’ likelihood of
recommending the company. This can be a
critical metric to evaluate the advocacy of
the customer.
• Customer Experience versus Ideal
Experience: Company can ask its custom-
ers to compare its product or service with
the customer’s ideal product or service ex-
pectations in order to understand whether
the company’s product and service meets
the real needs and wants of its customers.
• Overall Satisfaction: Another metric
to track is overall satisfaction with the
company,
• Affective and Cognitive Satisfaction:
Company requires to measure affective sat-
isfaction by asking customers to evaluate
(like or dislike) the service level agreement
benefits. On the other hand, cognitive sat-
isfaction needs to be measured by asking
customers’ judgments about the usefulness
of the service.
• Repeat Purchase Intention: Customer
satisfaction has also impact on the custom-
ers’ repurchase intention. Asking custom-
ers’ intention to repurchase, renew their

Customer Retention Strategies and Customer Loyalty
contacts, or purchase more products from
the company in the future help the compa-
ny understand whether customers are sat-
isfied with the company and whether they
will continue doing business.
Since satisfaction is not sufficient to create
customer retention, exceeding the customers’
expectations is an important criteria for keeping
customers loyal, companies need to learn about
customers’ expectations and needs by establishing
continuous communication with them. Customer
information is important to retain customers.
Thus, taking feedback is a crucial mechanism
to learn about the customers’ expectations and
needs. Establishing ongoing and interactive
communication system helps the company learn
about the needs, expectations and complaints of
the customers. Based on the gathered customer
feedback, company may improve its products,
services, and processes. Brand Republic and Snap
Surveys (2014) ask marketers which feedback
Figure 1. Customer feedback channels
Source: Brand Republic & Snap Surveys (2014). 7 most common mistakes in customer feedback. Retrieved July 20, 2014, from
http://www.snapsurveys.com/blog/download-free-report-7-common-mistakes-customer-feedback/
channels their companies are using. Figure 1 il-
lustrates the mostly used feedback channels that
are utilized in taking feedback from customers.
Company needs to adopt a multi-channel approach
while establishing feedback channels.
In today’s marketing environment, the way
companies serve their customers is an important
source of competitive advantage. Companies use
customer service to develop long-term relation-
ships. Customer service is crucial because it can
be used to differentiate a firm’s products, keep
customers loyal and in turn increase sales and
profits. Moreover, delivering superior customer
service provides an opportunity for a firm to gain a
sustainable advantage in the market place (Sharma
& Lambert, 2000). Service is the backbone of
any business. The quality and consistency of the
service are critically crucial for customer reten-
tion (Shostack, 2000). According to the Aberdeen
Report, improving customer retention (42%), im-
proving customer satisfaction (33%), and increas-
ing cross-selling and up-selling (32%) are among
249

Customer Retention Strategies and Customer Loyalty
the top three drivers for companies to invest in
customer experience management (ClickSoftware,
2011). A company that wants to increase customer
retention must provide superior experience and
service to its customers. Reliability, responsive-
ness, competence, access, courtesy, communica-
tion, credibility, security, understanding/knowing
the customer and tangibles are the determinants of
service quality (Parasuraman, Zeithaml, & Berry,
2000). Company needs to deliver reliable customer
service and be able to perform promised service
consistently and dependably. Being trustworthy,
believable, and honest influences the credibility
of the company, and customers want to business
with credible companies who are able to provide
service free from risk and doubt. Employees are
required to have skills and knowledge to perform
the service as well they should have the ability to
convey trust and confidence during the interactions
with customers. Moreover, they need to be respon-
sive and willing to provide service. Since courtesy
of employees also determines the service quality,
employees need to give individualized attention to
customers. Focusing on understanding customers’
needs, and building interactive communication
are essential to improve customer service quality.
While improving the service quality, company has
to focus on increasing customers’ accessibility to
its services, and appearance of physical facilities,
equipment, personnel and communication materi-
als (Parasuraman et. al., 2000).
The quality of the customer service provides
customer loyalty. Delivering personalized service,
being responsive and competent, and accessing
service conveniently are considered among the
determinants of good service (Hisaka, 2013).
Friendly employees or customer service rep-
resentatives (73%), easy access to support and
information (%55), and personalized services
(36%) make customer fall in love with the brand
(RightNow, 2011). For delivering exceptional
customer service, company requires to align its
organization around its customers, hire competent
agents, provide multichannel support, personal-
250

ize its customer service and experience, and be
proactive and responsive in responding.
Company needs to support its marketing,
sales and customer service employees with rich
customer insight in order to provide personal-
ized engagement with its customers and deliver
exceptional customer experience at every step of
the customer journey to stand-out from the com-
petition. Companies should take into consideration
the importance of qualified and skilled employees
in delivering service to the customers; because, $
338.5 billion is the cost of bad customer service
in the world per year (Hisaka, 2013). As indicated
in customer service infographics, 86% of consum-
ers have quitted doing business with a company
because of a bad customer experience and 91% of
unhappy customers will not willingly do business
with the company again (ClickSoftware, 2011).
Moreover, infographic which is produced by
Monetate (2012) shows that 73% of consumers
are willing to buy again from a company if they
have a superior customer experience. Therefore,
it is evident that another important component
of the customer retention marketing strategy
is to manage relationships in internal markets.
Company needs to provide employee training and
support programs in order to improve employees’
performance and enthusiasm as well as make the
quality of the customer service consistent. By
ensuring employee enthusiasm, employees of
the company can serve customers efficiently. To
deliver outstanding customer service, companies
need to create an internal culture which assists
and supports development of a customer oriented
culture within the organization.
Companies have to spend their time and re-
sources studying its defectors in order to increase
the rate of customer retention. As Bill Gates in-
dicates “the company’s most unhappy customers
are the company’s greatest source of learning”
(Fonolo, 2012); because of this reason, compa-
nies also need to consider customer complaints
as well as take feedback from their ex-customers.
Learning the source of dissatisfaction helps the

Customer Retention Strategies and Customer Loyalty
company to improve its products, services, and
processes. A good source of information about
how to improve customer loyalty can be obtained
by examining the customers who defect. Learn-
ing about the causes of defections provides an
opportunity for a company to revise and improve
all of its procedures (Reichheld, 2000). Marketing
research studies often focus on current custom-
ers or potential customers but rarely focus their
attention on ex-customers. However, companies
can determine the root cause of the defection by
focusing on ex-customers. Companies can do
interviews with former customers to learn the
reasons for their defection. In this way, other
defections can be prevented.
Loyal customers account for a valuable amount
of company profits; therefore, a company should
not risk losing a customer by ignoring their
complaints. The best thing a company can do
is to make it easy for the customer to complain.
Analysis of complaint data can be a golden op-
portunity for the firms to improve their services
and products. Companies must make investments
in complaint handling; in turn, this will lead to
an increased customer commitment and loyalty.
Effective complaint handling can have a dramatic
impact on customer retention rates (Tax, Brown,
& Chandrashekaran, 1998). A company can take
feedback from their customers through suggestion
forms, inquiries, toll-free numbers, online social
platforms, e-mail and mails. Listening to customer
complaints can also lead to a generation of new
ideas. Listening to customer complaints is not
enough, the company must respond to customer
complaints quickly and constructively in order
to increase customer satisfaction (Kotler, 2000).
Typically customers just want their complaints
be resolved quickly. Research shows that when
companies resolve problems quickly and effec-
tively there are positive consequences for customer
satisfaction, customer retention and word of mouth
(Tax et al., 1998).
Customers should know where to complain,
customers should know how to complain (the
more formal the system for complaint, the less
accessible it is to customers), complaints need to
be handled quickly (the quicker the complaints are
dealt with, the greater the satisfaction), adopting a
customer focused approach (invites complaining
and indicating the commitment of resolving the
complaints), someone in the company has to take
the responsibility for complaint handling, looking
for the root causes and fix them. A successful
complaint management system must ensure that
the complainant is kept informed, the staff under-
stands the complaint process, the complaints are
taken seriously and the employees are empowered
to handle complaints (Rai, 2012). To improve
the complaint management process, a company
requires to (Buttle, 2009):
• Make its complaints-handling policy and
processes visible and accessible to custom-
ers and employees,
• Train employees about how to respond to
complaints,
• Empower employees to resolve complaints,
• Enable customers to complain at all
touch-points,
• Ensure all employees understand the com-
plaints management process,
• Collect complaints data and analyze root
causes,
• Implement technology to support com-
plaints-handling and generate useful, and
• Management reports.
Customization is another requirement for cus-
tomer retention and loyalty and it is an important
tool for building loyalty when mass market quality
is no longer a sufficient differentiator (Gilmore
& Pine, 1996). CRM aims to build mutually
beneficial relationships with customers and a
fundamental approach to achieving this goal is to
customize the value proposition in order to attract
and retain targeted customers. In today’s turbulent
business environment, demands of the customers
are no longer homogenous. Therefore, firms have
251

Customer Retention Strategies and Customer Loyalty
to identify the needs of their customers and try to
develop exact products that will meet their needs.
Advancements in information technology make
it possible to know about customer needs and al-
low firm to communicate with customers on an
individual basis. Long-term relationships with cus-
tomers can be established through customization.
Customization generates competitive advantage.
To do customization, company needs to be aware
of, and responsive to customers’ differing require-
ments. Information systems allow the company
to capture, store and distribute customer-related
data. Based on the customer data, a company pro-
vide customized offers. Customization does not
mean offering customers more choice, customers
certainly want their needs to be met. They do not
necessarily want more choices; however they want
their needs have to be met.
Companies can maintain customer retention
and loyalty when they choose their target markets
carefully and prepare tailored marketing programs
according to the needs of their target markets. A
company can rarely satisfy everyone in the market;
therefore, companies have to find and keep the right
customers (Kotler, 2000). The right customers are
the ones to whom the best value can be delivered
by the company. Companies should establish and
enhance relationships with the right customers.
Companies have to analyze their customer bases
and target right customers who are profitable to
serve and strategically significant. Strategically
significant customers are the ones who have high
lifetime value and potential to use the product/
service in the long term, buy in large amounts,
serve as benchmarks for other customers, gener-
ate references and help companies access new
customers and markets, and inspire change and
improvement in the company’s business (Buttle,
2009). Thus, there is a need to make a customer
base segmentation on the basis of customer profit-
ability, relationship revenue and relationship cost
(Storbacka, 2000). The implementation of a CRM
strategy and the utilization of CRM technolo-
gies allow the company to effectively manage
252

its customer portfolio, achieve its strategic CRM
objective that is winning and keeping profitable
customers, and deliver satisfying customer experi-
ence for the profitable customers while ignoring
the other customers and market segments.
With the help of database marketing, compa-
nies can develop long-term customer relationships
and increase customer loyalty. Database marketing
is an important marketing tool that allows firms to
target the right customer segments, and through
database marketing, firms can generate strategic
tactics for each of the customer segments. More-
over, database marketing helps firms to identify
the needs of their customers. Thus, database mar-
keting strengthens the customer relationships; in
turn, this will lead to customer retention (Fletcher,
Wheeler, & Wright, 2000). Companies use their
databases in order to (Kotler, 2000):
• Identify Prospects: Companies use data-
bases to identify the best prospects. When
firms select the appropriate prospects with
the help of the database marketing, then
they try to convert them into customers.
• Decide Which Customers Should
Receive a Particular Offer: Firms iden-
tify the ideal target customer for an offer.
Then they search their customer databases
in order to find the people who resemble
the ideal type.
• Deepen the Customer Loyalty: Customer
databases can be used to increase customer
satisfaction; in turn, this will provide cus-
tomer loyalty. Companies can store their
customers’ preferences in their databases
and serve their customers according to
their preferences.
• Reactivate Customer Purchases: With
the help of customer databases, firms
can make attractive and timely offers.
Companies can send birthday or anniver-
sary cards, seasonal shopping reminders
and promotions to the individuals in order
to reactivate customer purchases.

Customer Retention Strategies and Customer Loyalty
Customer retention can occur at four different
levels and each level binds the customer a little
closer to the company. The four level of retention
strategies are (Rai, 2012):
• Financial Bonds: Customers are offered
financial incentives either for greater vol-
ume purchases or for continuation of rela-
tionship for a longer period of time. The
more the customers use the service, the
more they get discounts. The risk for finan-
cial model is that customers come for this
financial gain.
• Social Bonds: At this level, the company
intends to develop long term relation-
ships with customers through social and
interpersonal relationships. The services
are customized to fit individual needs.
Companies look for ways to keep in touch
with their customers by providing personal
touch and building informal relationships.
• Customization Bonds: Tailored offers are
provided for the customers. They take the
views and opinions of customers in the of-
fer design. If a customer feels that his opin-
ion is taken into account, it will certainly
lead to building special relationships with
the company. Many customers visit a par-
ticular restaurant because they believe that
the chef knows exactly what taste they like.
The customer stops going to that restaurant
when the chef goes.
• Structural Bonds: The company estab-
lishes a network with the customers and
offers everything required in the service
delivery process. They tie the customers in
the structure of the organization and then
leverage them. These bonds are created by
providing highly customized services to
the clients.
CUSTOMER COMMITMENT
Building long term relationship requires mutual
reciprocity, trust, and commitment. Commitment
can be defined as an enduring desire to maintain
a valued relationship (Moorman, Zaltman, &
Deshpande, 1992; Morgan & Hunt, 1994). Since
commitment refers to the motivation to continue a
relationship (Moorman et al. 1992), commitment
exists only when the relationship is considered
important and if there is no commitment, the
relationship will soon come to an end. Therefore,
relationship commitment is seen as an important
driver of customer loyalty (Morgan & Hunt, 1994;
Fullerton, 2003; Rauyruen, Miller, & Barrett,
2007). Customers may have different motivations
to commit to do business with the company. The
marital relationship is similar to the relationship
between the company and its customers (Dwyer,
Schurr, & Oh, 1987). Johnson, Caughlin, and
Huston (1999) mention about the tripartite nature
of marital commitment and they argue that the
experience of marital commitment is not unitary
and there are three distinct types of marital com-
mitment: personal, moral and structural commit-
ment. Each commitment type has different set of
reasons to continue a marital relationship.
Personal commitment to a marriage refers to
the sense of wanting to stay in the relationship.
A person may feel committed to the marriage
because he or she feels attraction to the partner.
Personal commitment is the function primarily
of love, marital satisfaction, and couple identity
(Johnson et al, 1999). Personal commitment has
positive impact on marital quality because personal
commitment can lead partners to act constructively
to solve problems and to reduce destructive com-
munication during conflicts (Tang, 2012). As
Stanley, Markman, and Whitton (2002) indicate,
spouses with high personal commitment to the
marriage work together to improve relationship
253

Customer Retention Strategies and Customer Loyalty
satisfaction, show less interest to alternative op-
portunities that can weaken their partners’ sense of
trust. Moral commitment in marital relationships
refers to feeling morally obligated to stay married.
Spouses prefer to stay married because of his or
her moral standards about childrearing or divorce.
Partners may feel that a marriage ought to last only
with death or partner might feel a personal moral
obligation to another person because with the mar-
riage he or she gives promise to stay with his or
her partner for the rest of life, and may think it is
not fair to leave (Johnson et al., 1999). Spouses,
who attach the marriage morally, perceive the
marriage as a lifelong relationship and because of
this reason they show tolerance to their spouses
especially when coping with difficulties in the
marriage (Lambert & Dollahite, 2008). However,
in structural commitment spouses are unsatisfied
with relationship but stay in the relationship be-
cause of external constraints (Tang, 2012). They
stay married regardless of the level of personal or
moral commitment (Johnson et al., 1999). Bar-
riers to leave a relationship or perceived costs of
dissolution of a relationship lead spouses to stay
married. Unfavorable alternatives, troublesome
termination procedures (division of properties),
irretrievable investments in the marriage (invested
time and resources into a relationship), and social
pressure (reactions of family members and friends,
they may not approve divorce) may create barriers
to leave the relationship (Johnson et al., 1999).
The tripartite nature of marital commitment
that is the personal, moral, and structural reasons
to stay married (Johnson et al., 1999) can be
also seen in relationship commitment between
the company and its customers. Customers may
commit to do business with the company because
of personal, moral, and structural reasons. In
personal commitment, customers prefer to con-
tinue the relationship with the company; because
customers feel satisfaction and comfortable to
do business with the company. This is a personal
and internal choice to commit to the relationship
(Peelen, 2005). Partners of the relationship, who
254

have high personal commitment, work together to
improve relationship satisfaction. Customers show
less interest to competitors. Personal commitment
has also positive impact on business relationship
quality because personal commitment can lead
partners to act constructively to solve problems
during conflicts. On the other hand, in the context
of moral commitment business partners continue
to the relationship because they feel a sense of
obligation to continue the relationship. In moral
commitment there is a limitation but the decision
to continue the relationship is given by internally
(Peelen, 2005). However, in structural commit-
ment customers are unsatisfied with relationship
but stay in the relationship because of external
constraints. High switching costs and barriers,
lack of alternatives, and troublesome termination
procedures lead customers to continue to do busi-
ness with the company. In structural commitment
there is no way to escape because investments have
been made; so there is limitation and the decision
to continue to the relationship is given because of
external reasons (Peelen, 2005).
Structural commitment can be considered
with the scope of calculative or continuance
commitment. Calculative commitment is based
on rational and economic calculation; while af-
fective commitment (personal commitment) is
driven by an emotional and social attachment.
However, normative commitment (moral commit-
ment) is an attachment driven by felt obligation.
In calculative commitment customer commits
to the relationship by calculating the benefits
associated with continuing the relationship and
the costs of relationship termination. There are
two types of calculative commitment: negative
and positive calculative commitment. Negative
calculative commitment is referred as locked-in
commitment which arises due to the irretrievable
relationship-specific investments, perceived lack
of alternatives, and/or perceived switching and
termination costs. Positive calculative commit-
ment is considered as value-based commitment,
which is based on the rational calculation of ben-

Customer Retention Strategies and Customer Loyalty
efits that arise from continuing the relationship.
In value-based commitment, customers continue
their relationship because they benefit from staying
in the relationship (Sharma, Young, & Wilkinson,
2006). Sometimes customers commit to the re-
lationship because of high switching cost or lack
of alternatives and this causes customers to feel
that they are trapped in the relationship. Although
calculative commitment maintains continuance,
there is no relational bond. Since calculative com-
mitment is based on task oriented and rational
bond, customer may terminate the relationship
if he receives an economically attractive offer
from competitors (Gilliland & Bello, 2002). In
affective commitment customer attaches the re-
lationship due to the liking or feeling of positive
affect towards the firm. Affectively committed
customers stay in relationship because they want
to and they like and enjoy working with the firm
(Fullerton, 2005). However, in normative (moral)
commitment compliance is due to the felt obli-
gations, identification with or internalization of
partner’s value.
Commitment is one of the essential drivers of
developing long term sustainable relationships
and customer loyalty (see Figure 2). Loyalty is
the degree to which a customer exhibits repeat
purchasing behavior from the company, possesses
a positive attitudinal disposition toward the com-
pany, and considers using only this company when
a need for this product or service arises (Gremler
and Brown, 1996). Commitment has an impact on
Figure 2. Commitment is a driver of loyalty
customer’s future purchase intentions and intention
to stay in the relationship. Dick and Basu (1994)
identify four forms of loyalty based on the relative
attitudinal strength and repeat purchase behaviour:
• Loyalty: A high level of both repeat buying
and relative attitude (their repeat purchas-
ing is explained by affective commitment).
• Spurious Loyalty: A low relative attitude
accompanied by high repeat buying (their
repeat purchasing can be explained by
locked-in commitment).
• Latent Loyalty: Having a strong relative
attitude but not accompanied by repeat
buying.
• No Loyalty: A low relative attitude com-
bined with low repeat patronage.
Customer loyalty can be handled from two
perspectives: behavioural and attitudinal loyalty.
Attitudinal loyalty includes attitude such as be-
liefs, feelings and purchasing intention. Whereas,
behavioral loyalty reflects customer purchasing
behavior. Behavioral loyalty is considered as the
customer’s willingness to repurchase the product
and to continue a relationship with the company.
On the other hand, attitudinal loyalty expresses
the level of the customer’s psychological attach-
ments and attitudinal advocacy to the company
(Rauyruen et al., 2007). Behavioral loyalty is the
observable outcome of attitudinal loyalty.
255

Customer Retention Strategies and Customer Loyalty
Customer loyalty is a strategy that creates mu-
tual benefits for the company as well as customers.
To achieve customer retention and loyalty, compa-
nies provide value added benefits and rewards to
their customers for their repeat purchases. On the
other hand, with loyal customers, companies can
maximize their profit because loyal customers are
willing to buy more frequently, purchase cross-
sell and up-sell offers, recommend products and
services to others, and act as customer referrers.
Therefore, both parties of the relationship benefit
from the development of long term relationships.
Companies that want to promote longer-term
customer relationships, maintain customer reten-
tion, and reduce customer defection rates, should
focus on understanding the drivers of customer
loyalty and why customers stay. So that, compa-
nies can develop strategies that promote customer
retention. In efforts to achieve customer loyalty, a
company should focus on building relationships
based on affective aspects of commitment rather
than calculative aspects. As customer retention
strategy, affective commitment, which is based
on attraction between partners, has to be preferred
over calculative commitment. Since calculative
commitment is based on constant weighing of the
benefits of a relationship with a partner against
the costs of that relationship, relationship that is
based solely on calculative commitment most
likely not to last for a long time.
Affective commitment, which is considered
as personal commitment, has a negative impact
on switching intentions and a positive impact
on advocacy intentions of customers (Fullerton,
2005). As it is known, customer loyalty has a
positive effect on customer willingness to accept
price increases. Customers, who experience high
levels of affective commitment, are more likely to
accept high prices. However, the presence of cal-
culative commitment in the relationship decreases
the positive effects of affective commitment on
willingness to pay more (Fullerton, 2003). Af-
fective commitment is key to the maintenance
of customer retention. Thus, companies need to
256

aim for achieving affective commitment in order
to achieve sustainable and profitable long term
relationships with their customers, and ensure
customer advocacy (see Figure 3).
Calculative commitment has a weaker effect
than affective commitment on customer retention
(Fullerton, 2003; 2005) and makes a negative
impact on advocacy intentions and word of mouth
communication (Fullerton, 2005). This means that,
in calculative commitment customers continue
to repurchase; but they do not show attitudinal
loyalty. Since in calculative commitment espe-
cially for the locked-in commitment, customers
feel that they are being locked in the relationship.
They may think to terminate the relationship as
soon as possible when they have the opportunity
to exit the relationship (Fullerton, 2003). When
the incentives or barriers that lead to calculative
commitment are removed, customers can easily
terminate the relationship or switch to the other
company that provides an attractive offer. Thus,
customers who feel trapped in the relationship
are unlikely to act as referrer. However, in highly
competitive markets, encouraging customer re-
ferrals is an essential part of customer retention
strategies. Companies that want to completely reap
the benefits of their loyal customer base require to
Figure 3. Positive customer retention strategy

Customer Retention Strategies and Customer Loyalty

focus on creating affective commitment as well as
decreasing locked-in commitment activities and
increasing value based commitment activities.
There are some strategies and tools that a
company can use in order to build and enhance
customer affective commitment or at least value
based commitment to the company within the
context of customer retention program. Companies
that want to enhance customer affective commit-
ment require to avoid creating switching barriers
and costs, which are going to create a sense of be-
ing trapped in the relationship. Harvard Business
Review analyses the case of Virgin Mobile USA
and this case reveals the fact that companies can
also enhance customer retention without using
structural commitment or locked-in commitment
tools (see Box 1).
There is high competition in the mobile com-
munications industry in the USA. As indicated in
the HBR case study, in context of the USA market,
where the average cost to acquire a customer is ap-
proximately $370, average monthly mobile phone
bill is $52, cost to serve a customer is $30 monthly,
and customer churn rate roughly is 24% for each
year, mobile communication carriers do not find
meaningful to acquire new customers, who do not
use the phone for business purposes or who do not
already subscribe to a mobile phone service. So
that mobile communication carriers try to main-
tain the commitment of their customers through
contractual agreements generally for a period of
one to two years. There is a high level of customer
dissatisfaction in the USA market. Financial pres-
sures on mobile carriers make their sales process
and pricing plans complex, and force them to use
lock-in contracts, hidden fees and pricing buckets
to increase margins, cut some customer services
to reduce costs, and aggressively promote low
prices. Complex pricing plans (e.g., pricing buck-
ets, hidden costs, and peak/off-peak distinctions),
credit checks, forced contacts, and poor service
lead high level of customer dissatisfaction in the
USA mobile carrier industry. Forced contracts
that cause customers feel trapped in tariffs, pe-

Box 1. Virgin Mobile achieves customer retention without using locked-in commitment tool

The case company Virgin uses a number of different managerial tools to counter negative effects of eliminating locked-in commitment
tools such as contracts through identifying a niche market, understanding real needs of target market, customizing offers based on the
needs of the target market, lowering customer acquisition costs, embracing additional pricing elements that the target market value and
willing to pay, developing a highly differentiated positioning through new service and new pricing proposition. Virgin mobile analyzes
the current situation and realizes that customers do not want contracts, pricing buckets, hidden fees, peak/off-peak hours distinction, and
credit check; but want simple sales process and great service. However, designing a consumer friendly plan causes potential problems.
For instance, eliminating the contracts increases the customer churn rate, excluding the hidden fees, pricing buckets, and peak/off-peak
hour distinction strategies from the pricing plans lowers operating margins, and delivering great service increases the costs. Virgin
Mobile focuses on delivering consumer friendly plan based on the customer needs and wants; at the same time it tries to minimize
potential problems of consumer friendly plan. Virgin Mobile develops a different approach compared to its competitors, who are trying
to sustain commitment of customers through locked-in tools (e.g. forced contracts) or cope with financial pressures through complex
pricing plans (e.g. hidden fees, peak/off-peak hour distinction). First of all, Virgin Mobile identifies a niche market in the crowded
market. It targets consumers aged 15-29; because big players in the industry have not targeted this segment. Moreover, penetration rate is
low and the growth rate among this target market is expected to robust. Identifying a niche allows the Virgin Mobile to develop a highly
differentiated competitive advantage through new services packages and pricing proposition. It lowers customer acquisition costs through
utilizing a different distribution channel to decrease sales commissions, reducing advertising costs, and offering handset subsides at
half the rate of the industry average. As opposed to its competitors, Virgin Mobile offers prepaid subscription to this new target market.
Prepaid plan eliminates the need of contracts and credit checks, simplifies the selling process, encourages trial, and lowers to cost to
serve. It provides simple per minute price; and it does not offer pricing buckets as well as it does not charge any hidden fees. Briefly,
Virgin mobile delivers a consumer friendly plan that is designed and based on the customer needs and wants, and minimizes the potential
problems through developing a highly differentiated new services packages and pricing proposition. This new approach enables Virgin
Mobile to surpass its goal of acquiring 1 million customers within a year launch, achieve the lowest churn rate in the prepaid world, and
simplify the sales and pricing complexity which delights its customers. With this offer, the only thing that keeps customers coming back
is satisfaction.
Source: Jallat, F. (2011). Virgin Mobile USA: Pricing for the very first time (Final). Retrieved April 25, 2013, from http://www.
slideshare.net/nguyenhamar/virgin-mobile-final

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Customer Retention Strategies and Customer Loyalty
nalization of customers due to the pricing bucket
shortfalls and over usages, hidden costs, and peak/
off-peak distinctions are among the main sources
of dissatisfaction. In the USA market, over 90%
of all subscribers have a contractual agreement
with their service providers. Contracts provide
carriers protection against customer churn and
guarantee annuity revenue stream. Even with the
contracts, mobile carriers experience averagely %2
industry churn rate per month. When the mobile
carriers shorten or eliminate the contracts, it is
estimated that churn would be averagely 6% per
month (McGovern, 2007).
Carriers in the USA market try to create struc-
tural commitment through offering buckets of
minutes and in order to get a good rate customers
sign contracts for a period of one to two years.
This type of contractual commitment is based on
economic calculation. In calculative commitment
customer commits to the relationship by calculat-
ing the benefits associated with continuing the
relationship and the costs of relationship termina-
tion. They do not feel an emotional attachment to
the company. Customers demonstrate locked-in
commitment due to the signed contracts. When
customers experience dissatisfaction about the
core services (e.g. network coverage, roam-
ing), customer service (e.g. complaint handling,
customer service speed and competency), and/
or pricing (e.g., billing, charges for exceeding
limit), they cannot terminate the relationship
easily. They need to wait until the end of their
contracts. Therefore, customers feel trapped in
the relationship. Although they seem to be com-
mitted to the relationship, there is no relational
bond. Customer may terminate the relationship
if he receives an economic pricing package offer
from another carrier.
Creating satisfaction appears to be a crucial
factor in maintaining purchase intentions; whereas,
service quality strongly enhances both purchase
intentions and attitudinal loyalty (Rauyruen et
al., 2007). Service quality is expected to have
significant effect on the development of affec-
258

tive commitment to the company. Because of this
reason, customer retention program of companies
needs to include activities to improve service
quality. Companies’ need of delivering improved
customer service quality is crucial because it can
be used to differentiate a firm’s products, keep
customers loyal and in turn increase sales and
profits. Moreover, delivering superior customer
service provides an opportunity for a firm to
gain a sustainable advantage in the market place
(Sharma & Lambert, 2000). Customer retention
management programs that are built on value
based commitment and support are likely to be
more effective than programs that emphasize
switching costs and barriers in building customer
retention (Fullerton, 2003). Establishing affec-
tive commitment can be possible by increasing
the relationship benefits (delivering more value
to customers), focusing on communication and
listening the voice of customers instead of con-
vincing them for sales, establishing interactive
communication, and avoiding opportunistic and
self-interest maximization behavior (Morgan &
Hunt, 1994).
LOYALTY PROGRAMS
Creating customer loyalty is essential for the
financial health of the company. Long-term com-
pany success depends on the company’s ability
to cultivate from loyalty. Thus, it is significant
to ensure and coordinate the activities that will
foster customer retention and loyalty. Loyalty pro-
grams also facilitate customer retention. Loyalty
programs allow the company to track the buying
behaviour of the customers, develop commitment,
and reward loyal and frequent buyers. Companies
use loyalty programs in order to encourage repeat
purchasing and increase customer retention. Loy-
alty programs perform two significant roles in
CRM implementations. First, they generate data
that can be used to guide customer acquisition,
retention and development. Secondly, loyalty

Customer Retention Strategies and Customer Loyalty
programs may serve as an exit barrier. Custom-
ers who have accumulated credits in a scheme
may be reluctant to exit the relationship (Buttle,
2009). These programs usually take the shape of
membership and loyalty card programs in which
customers are rewarded for their loyalty. These
rewards may range from privileged services to
receiving points for money spent, special pur-
pose membership cards, bonuses and discounts
(Raphel, 1995).
According to the Trendwatching.com (October,
2008) report perks and privileges are the new
currency. Perkonomics defined as a new breed
of perks and privileges which is added to brands’
regular offerings in order to allow customers to
achieve status, helps customers save time, make
their life convenient, and/or deliver free love
which means gesture of kindness. Customers
truly appreciate the exclusive access to privileges
and perks; therefore it can be used as a part of a
loyalty program in order to reward loyal customers
or create enjoyable experiences to foster loyalty.
Perks that deliver free love in the form of gestures
lead customers to love the brand more. Exclusive
access to privileges and perks creates a sense of
uniqueness which in return enables customers to
achieve status in the society. Sense of uniqueness
fosters customer loyalty as well as helps the brand
attract first time customers. When the perks and
privileges are consumed by customers, others also
see or customers tell their experiences about perks
to others. Since perks are excellent conversation
starters, they can be used to create buzz and at-
tract first time customers. A good perk story may
also function as public relation activity. Perks also
make brands enjoyable, attractive and desirable
(Trendwatching.com, October 2008).
Perks and privileges help satisfy consumers’
needs for status or convenience or empathy, or
all of them at the same time. Random acts of
kindness delights customers. Integrating perks,
privileges and random acts of generosity to loyalty
programs require careful planning to get ROI and
these initiatives make customers not just pleased,
but grateful. For instance, Interflora launches
a social media campaign in the UK in order to
make lives of Twitter users happier by sending
them flowers. Interflora tracks Twitter accounts
to find out Twitter users who need to be cheered
up. Then the brand contacts with them in order to
send them flowers as a surprise. This random act
of kindness delights customers, starts conversation
about the brand and can be attractive to attract
first time customers (Trendwatching.com, March/
April, 2011).
Perks can be provided in various forms. A
few perks examples will be given in the below
(Trendwatching.com, October 2008):
• Only and First Perks: Perks that are given
only a specified group of customers with a
priority. This form of perk creates unique-
ness and customers feel they are privileged.
For example, Amex provides its cardhold-
ers exclusive access to purchasing a dress
which is selected by famous designer Diane
von Furstenberg; however this dress cannot
be purchased by non-Amex customers.
• No Queue Perks: No queue perks allow
customers save time by passing queue
directly. This form of perk provides con-
venience for customers. Avis provides its
customers a preferred membership, which
allows its customers to get their keys with-
in 3 minutes and go directly to their car
skipping paperwork and without waiting in
lines.
• Concierge Perks: Brand can offer con-
cierge perks by caring their customers’ res-
ervations, repairs, bookings, shopping, etc.
A good example for concierge perks can
be given from Insinger de Beaufort. The
Amsterdam based bank offers a new ser-
vice to its customers in order to help their
customers save time and organize their per-
sonal finance tasks. Every month they send
259

Customer Retention Strategies and Customer Loyalty
their clients a shoebox and clients put their
bills, bank statements, receipts, tax returns,
and all other financial documents into the
box. Then the bank takes the box from
them and processes its content. Bank takes
care of the entire follow-up process and
sends a complete overview of actions and
transactions within three business days.
• Parking Perks: Parking perks also make
customers’ life easy and provide hassle-
free parking or free parking to custom-
ers. Lexus offers free parking privileges
in Australia. Owners of Lexus access to
free parking at a number of cultural cen-
ters throughout the country, including the
Sydney Opera House. This privilege is pre-
cious both from a status and convenience
perspective and can also take attention of
potential customers.
WIN BACK STRATEGIES
In the last stage of the purchase cycle, companies
require to make defection analysis. There are two
types of defection: avoidable defection and natural
(unavoidable) defection. Customers defect for
various reasons and some of these reasons are
preventable. Thus, knowing this fact the company
needs to implement win back strategies to prevent
them from avoidable defections. On the other hand
some of the defections cannot be preventable.
The company can learn a great deal by listen-
ing the voice of customers. The company should
analyse why the customers leave the company
and take corrective actions if it is an avoidable
defection. The company requires to analyze the
complaint and service data in order to identify
the problems that may cause defection and if it is
needed it can change its processes and systems.
Defection analysis is a key component for the
company’s customer retention strategy by this
way it can win back its customers.
260

Companies should also analyze and find out
if customers give any early warning signals of
defection. If the company identifies signals of
customer churn, it can take pre-emptive action.
Signals might include the following (Buttle, 2009):
• Reduced RFM scores (recency–frequen-
cy–monetary value),
• Non-response to a carefully targeted offer,
• Reduced levels of customer satisfaction,
• Dissatisfaction with complaint handling,
• Reduced share of customer,
• Inbound calls for technical or product-re-
lated issues,
• Late payment of an invoice, and
• Querying an invoice.
Customer recall management is about winning
back the customers who have either reduced their
level of business transactions with the company or
have stopped transaction at all. It aims to rebuild
relationships with the customers who have aban-
doned the company. Regain management aims at
former customers who have experience with the
company. In traditional recruiting, segmentation
is solely based on the external data and commu-
nication is directed mainly one way toward the
prospect. With regain management marketing
can rely on proprietary database for segmenta-
tion and communication more often initiated by
the expired customers (Bose & Bansal, 2001).
Quantifying the value of customer is essential in
regain management. Without knowing the value
of customers it is difficult to know how much the
company should spend in order to reacquire the
customer. Customization, differentiation and wow
strategies are among the regain strategies for lost
customers (Bose & Bansal, 2001).
Vtrenz (2004) identifies nine principles for
winning back profitable customers:
• Identify at risk customers early
• Evaluate customer value

Customer Retention Strategies and Customer Loyalty
• Understand motivations for defection
• Track the competition
• Improve on the attributes most valued
• Leave on a good note
• Stay in touch
• Ask for another chance
• Provide a peace offering
CONCLUSION
The primary goal of relationship marketing is to
build and maintain a committed customer base
who is profitable for the company. Loyal custom-
ers provide a solid base of revenue stream for the
company as well as they may represent growth
potential; because they buy more products and
services from the company over time. Companies
implement retention marketing practices in at-
tempt to increase customers’ commitment to the
company. In the context of retention marketing,
company needs to identify customers who are
profitable to serve, and find out ways to keep them
with the company. Improving customer retention
rates while decreasing the defection rates is an
important objective for the CRM strategies; be-
cause long-term company success depends on the
company’s ability to cultivate from loyalty. Thus,
marketing’s mission is to ensure and coordinate
the activities that will foster customer retention
and loyalty.
A company can maintain customer retention
and loyalty through customer satisfaction, supe-
rior service, loyalty programs, defection analysis,
complaint handling, mass customization, customer
targeting and database marketing. Companies must
aim for high satisfaction; because high satisfaction
creates an emotional bond with the firm and in
turn, this will lead to customer retention. Provid-
ing superior value, which will delight customers,
is the most reliable way to ensure sustainable
customer satisfaction and customer loyalty. On
the other hand, delivering poor product and/or
service is the main source of dissatisfaction. To
maintain customer satisfaction, companies need
to learn about customers’ expectations and needs.
Listening the voice of customers is essential
to learn about the customers’ expectations and
needs. Company can listen the voice of customers
through customer satisfaction indices (e.g., making
surveys to measure customer satisfaction), market
research, feedbacks (e.g., evaluating complaints,
comments, and questions), and frontline employee
(frontline employees, who have direct interaction
with customers, provide customer insight). Based
on the gathered customer feedback, company may
improve its products, services, and processes; so
that it can achieve customer satisfaction. More-
over, a good source of information about how
to improve customer loyalty can be obtained by
examining the customers who defect. Learning
about the causes of defections provides an op-
portunity for a company to revise and improve
all of its procedures. The quality and consistency
of the service are critically crucial for customer
retention. A company that wants to increase cus-
tomer retention must provide superior service to
its customers. To deliver outstanding customer
service, companies need to ensure employee
enthusiasm and create an internal culture which
assists and supports development of a customer
oriented culture within the organization.
Loyal customers account for a valuable amount
of company profits; therefore, a company should
not risk losing a customer by ignoring their com-
plaints. Since effective complaint handling can
have a dramatic impact on customer retention
rates, company must respond to customer com-
plaints quickly and constructively. Customization
is another requirement for maintaining customer
retention and loyalty. Customization help the
company build mutually beneficial relationships
with customers. To do customization, company
needs to be aware of, and responsive to custom-
ers’ differing requirements. Information systems
allow the company to capture, store and distribute
customer-related data and based on the customer
data, a company can provide customized offers.
261

Customer Retention Strategies and Customer Loyalty
Companies can maintain customer retention and
loyalty when they choose their target markets care-
fully; because a company cannot satisfy everyone
in the market. Therefore, companies have to find
and keep the right customers who are profitable
for the company to serve. Database marketing is
an important marketing tool that allows firms to
target right customer segments, identify customer
needs, and provide tailored products and services
for each of the customer segments. Thus, database
marketing strengthens the customer relationships;
in turn, this will lead to customer retention.
Commitment can both enhance and erode rela-
tionship between the company and its customers.
Affective commitment efforts enhance the rela-
tionship between the company and customers. On
the other hand, although locked-in commitment
ensures customer continuance, when customers
feel trapped in a relationship due to switching costs
or lack of choice, locked-in commitment activities
can cause detrimental effects on the relationship.
Being trapped in a relationship causes customers
to withdraw their support in the form of word of
mouth communication and advocacy. Therefore,
companies require to aim for creating affective
commitment; because affective commitment sup-
ports the development of sustainable and long term
relationships, reduces switching intentions and
increases the advocacy intentions of customers.
Loyalty programs are utilized in order to
maintain customer retention and encourage repeat
purchasing. Loyalty programs perform two sig-
nificant roles in CRM implementations. First, they
generate data that can be used to guide customer
acquisition, retention and development. Secondly,
rewarding loyal and frequent buyers with loyalty
programs may serve as an exit barrier. Customer
who want to gain rewards continue to do business
with the company.
Companies require to know their customer
churn rate and consider its cumulative negative
effect over a year’s time. If companies want to
262

win back their lost customers, they have to give
them an opportunity to tell why they left. They
need to listen the voice of ex-customers as well as
dissatisfied existing customers. In return, company
can gain valuable insight about its weakness, and
have a chance to improve its processes, products
and services with the purpose of wining some
customers back. Companies can implement cus-
tomer recall management in order to win back
customers who have either reduced their level of
business transactions with the company or have
stopped transaction at all. It aims to rebuild rela-
tionships with the customers who have abandoned
the company.
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Customer Retention Strategies and Customer Loyalty
KEY TERMS AND DEFINITIONS
Affective Commitment: Affective com-
mitment refers to a desire based attachment to
the firm. Affective commitment is driven by an
emotional and social attachment. In affective com-
mitment customer attaches the relationship due
to the liking or feeling of positive affect towards
the firm. Affectively committed customers stay
in relationship because they want to and they like
and enjoy working with the firm.
Attitudinal Loyalty: Attitudinal loyalty
includes attitude such as beliefs, feelings and
purchasing intention. Attitudinal loyalty expresses
the level of the customer’s psychological attach-
ments and attitudinal advocacy to the company.
Behavioral Loyalty: It reflects customer pur-
chasing behavior. Behavioral loyalty is considered
as the customer’s willingness to repurchase the
product and to continue a relationship with the
company. Behavioral loyalty is the observable
outcome of attitudinal loyalty.
Cult Brand: Cult Brands are a special class
of magnetic brands that command super-high
customer loyalty and almost evangelical customers
or followers devoted themselves to the company.
Cult brands create customers who love them so
much that they won’t do business with anyone else.
Cult brands do not just offer great products and
services, they provide social interaction, esteem,
and self-actualization.
Locked-in Commitment: Locked-in commit-
ment arises due to the irretrievable relationship-
specific investments, perceived lack of alterna-
tives, and/or perceived switching and termination
costs. In locked-in commitment, customers feel
that they are being locked in the relationship. Al-
though locked-in commitment ensures customer
continuance, customers may think to terminate the
relationship as soon as possible when they have
the opportunity to exit the relationship.
Loyalty Program: Loyalty programs facilitate
customer retention. Loyalty programs allow the
company to track the buying behaviour of the
266

customers, develop commitment, and reward loyal
and frequent buyers. Loyalty programs perform
two significant roles in CRM implementations.
First, they generate data that can be used to guide
customer acquisition, retention and development.
Secondly, loyalty programs may serve as an exit
barrier.
Moral Commitment: Within the context of
moral commitment, business partners continue
to the relationship because they feel a sense of
obligation to continue the relationship. In moral
commitment there is a limitation but the decision
to continue the relationship is given by internally.
Negative Calculative Commitment: It is
referred as locked-in commitment which arises
due to the irretrievable relationship-specific in-
vestments, perceived lack of alternatives, and/or
perceived switching and termination costs.
Perkonomics: According to the Trendwatch-
ing.com report perks and privileges are the new
currency. Perkonomics defined as a new breed
of perks and privileges which is added to brands’
regular offerings in order to allow customers to
achieve status, helps customers save time, make
their life convenient, and/or deliver gesture of
kindness.
Personal Commitment: In personal commit-
ment, customers prefer to continue the relation-
ship with the company; because customers feel
satisfaction and comfortable to do business with
the company. This is a personal and internal choice
to commit to the relationship. Customers show
less interest to competitors. Personal commitment
has also positive impact on business relationship
quality because personal commitment can lead
partners to act constructively to solve problems
during conflicts.
Positive Calculative Commitment: It is
considered as value-based commitment, which is
based on the rational calculation of benefits that
arise from continuing the relationship. In value-
based commitment, customers continue their
relationship because they benefit from staying
in the relationship.
 
Customer Retention Strategies and Customer Loyalty
Structural Commitment: In structural com-
mitment customers are unsatisfied with relation-
ship but stay in the relationship because of external
constraints. High switching costs and barriers,
lack of alternatives, and troublesome termination
procedures lead customers to continue to do busi-
ness with the company. In structural commitment
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there is no way to escape because investments have
been made; so there is limitation and the decision
to continue to the relationship is given because
of external reasons. Structural commitment can
be considered with the scope of calculative or
continuance commitment.
267