NAME JORAM WALUKAMBA YEKONIA

REGISTRATION NUMBER VU-BRE-2101-0636

LECTURER DR. LILIAN KOBUSINGYE

FACULTY OF BUSINESS AND MANAGEMENT

BRE1204

BROKERAGE AND BUSINESS MANAGEMENT

ASSIGNMENT

TASK: “Assignment 2”
Number 1

Describe the four levels of retention strategies and give examples.

Customer retention is the activity that a selling organization undertakes in order to reduce
customer defections Reference. Retention marketing strategies provide many benefits to the
company because loyal customers increase their spending at an increasing rate, purchase at a full
margin rather than at discount prices, and create operating efficiencies. Moreover, acquiring new
customers such as new account setup, credit searches, advertising and promotional expenses is
costly compared to retaining a customer Reference. 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 established relationship they are also likely to be less responsive to
price appeals offered by competitors. Customer retention can occur at four different levels and
each level binds the customer a little closer to the company. The four levels of customer
retention strategies are described below;
Level one: Financial Bonds. At this level, clienteles are offered financial incentives either to
enhance purchases in bigger volumes or to re-establish a continued relationship between the
company or service provider and the customer for a longer period of time – in that the more the
customers use the services rendered, the more they get discounts.
For example, during the Black-Friday season in November, most retailers such as
supermarkets, furniture stores, electronic shops etc. offer discounts such as “buy two, get one
free” or “buy three at the price of one” depending on the commodity. Another good example is
Game departmental store. Throughout the lockdown, whenever you would purchase any heavy
duty appliance for example a fridge, cooker, washing machine or any other, Game would offer
you free transportation to your home and would even put in an extra service of offloading,
assembling and installing it for you to make sure the appliance was working properly.
The risk for this financial model is that customers come for this financial gain. Since
customers are attracted solely by only the offers and/or incentives offered by the company, the
risk is that without these discounts, the customers are prone to seek out other commodities or
services from other companies. The relationship is “just a business” i.e. purely monetary.
Level two: Social Bonds. At this level, the company plans to develop long term relationships
with their customers by means of creating more social and/or interpersonal relationships. The
services rendered by the companies are tailored and/or personalized in order to correspond to the
individual needs of their clientele Reference.
Social and/or interpersonal bonds are very frequently seen amongst professional service
providers for example lawyers, accountants and teachers, architects etc.; also among personal
care providers for example hair-dressers, beauticians, counsellors, healthcare providers etc. For
example, if Lilian owns a restaurant in Bukoto and has started to realise that most of her clients
come out to eat with their toddler children, Lilian would order for more baby chairs to cater for
the children. This shows Lilian’s customers that she acknowledges them and shows a personal

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touch. Her clients will continue to come to her restaurant and even recommend other families to
come and dine because she has a homely feel to her restaurant.
Through this level of social bonds, companies seek to keep in touch with their clients
through the creation or providing of a “personal touch” and building lifelong informal
relationships.
Level three: Customization Bonds. At this stage, tailored or customized offers are provided by
companies for the customers. They take the views and opinions of customers in the offer design.
If a customer feels that his opinion is taken into account, it will certainly lead to building special
relationships with the company.
It is a popular saying that many customers visit a particular restaurant because they
believe that the chef knows exactly what taste they like. This means that the customer stops
going to that restaurant when the chef goes. Another example is with whisky spirit brands like
Johnny Walker blended scotch whisky, Jim Beam bourbon whiskey, Singleton single malt
whisky and Jameson Irish whisky to mention but a few – who have customized branded whisky
glasses (also called rocks glasses) for their regular drinkers. This keeps them coming to buy these
particular brands.
During the customization bonds stage, customer loyalty is encouraged through intimate
knowledge of individual customers and through the development of a distinctive or specialized
bond between the company and the client.
Level four: Structural Bonds. At the final level of retention strategies, the company establishes
a network with the customers and offers everything required in the service delivery process.
A good example is MTN which offers rewards in form of Senkyu points to their loyal
customers. This is a way of giving back to the clients and also creates a bond. These Senkyu
points can be used to buy bundles such as calls, Short Message Services, and even internet
bundles. Furthermore, MTN floated 20% of their shares for all their customers at a very cheap
price of 200 UGX with a minimum of 100 shares per shareholder.
Structural bonds attach the customers in the structure of the organization and then
leverage and/or attach them to the company. These bonds are created by providing highly
customized services to the clients as described above

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 Reference. Creating customer loyalty is essential for the survival of
the company in highly competitive markets.

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Number 2

What's the difference between dynamic pricing and price discrimination?

Dynamic pricing. Dynamic pricing is the study of determining optimal selling prices of products
or services, in a setting where prices can easily and frequently be adjusted Reference. This
applies to vendors selling their products and services over the Internet such as Jumia, Jiji,
Amazon, Alibaba etc. or to brick-and-mortar stores that make use of digital price tags. Examples
include supermarkets and hypermarkets like Carrefour, Mega Standard, Game, Millennium, etc.;
departmental stores like LC Waikiki and Victoria Secrets; hardware stores like Seroma; furniture
stores like Nina interiors; restaurants like Javas; gas stations like Shell, Total, City Oil, Stabex
and so on.
In both cases, digital technology has made it possible to continuously adjust prices to
changing circumstances, without any costs or efforts. Dynamic pricing techniques are nowadays
widely used in various businesses, and in some cases considered to be an indispensable part of
pricing policies. Some of the forming factors for dynamic pricing include customer behavior and
characteristics; fair prices; market structure; product demand; the perception of product value;
and the Seasonality.
Price discrimination. Price discrimination may be defined as the practice of a firm or group of
firms of selling (leasing) at prices disproportionate to the marginal costs of the homogenous
products or services sold (leased). Most firms produce several products (or at least several
product qualities) and can sell them at discriminatory prices Reference.
The different distinctions of price discrimination according to Reference are described
below;
First-degree (perfect or optimal) price discrimination involves the seller charging a
different price for each unit of the good in such a way that the price charged for each unit is
equal to the maximum willingness to pay for that unit. A very good example is in markets like
Nakasero and Nakawa which charge different prices of food stuffs for different buyers
depending on individual bargaining power.
Second-degree (nonlinear) price discrimination occurs when prices differ depending on
the number of units of the good bought, but not across consumers. That is, each consumer faces
the same price schedule, but the schedule involves different prices for different amounts of the
good purchased. Quantity discounts when buying goods in bulk is an obvious example. When
you buy more than ten t-shirts on Alibaba, you will get a 10% discount.
Third-degree price discrimination means that different purchasers are charged different
prices, but each purchaser pays a constant amount for each unit of the good bought. This is
perhaps the most common form of price discrimination. Examples include student discounts at
universities like Victoria University Uganda; or charging different prices on different days of the
week for example Pizza Hut that offers a 50% discount on pizzas on Thursdays.

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References

1.

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