Managing the Customer Lifecycle

:
Customer Development and
Retention
Strategies for Customer
Development

Integrated marketing communication

Event based marketing

Customization

Up-selling and cross-selling

Channel integration

Marketing optimization using cost-
effectiveness models
Customer Retention

Customer retention for FMCG or FMCS
= (customers at the end of financial year) / (active
customers at the beginning of the year)

The above is modified for consumer durables by
considering repurchase or replacement cycle

Identifying 'customer' through
– Product purchase
– Intermediaries
– Functions (after-sales service)
– Using aggregates and averages
Customer Retention

Measures of retention:
– Raw CR rate = (no. of customers doing business at the
end of the year) / (active customers at the beginning of
the year)
– Sales adjusted CR rate = (sales received from
retained customers) / (sales achieved form all
customers at the beginning of the period)
– Profit adjusted retention rate = (profit earned from
retained customers) / (profit earned from all customers
at the beginning of the period)
Customer Retention vs Value
Retention

Consider:
– A retail outlet having 1000 customers
contributing a total Rs 50 lakhs revenue per
month
– 50 customers defect; revenue comes down to
Rs 40 lakhs

5% reduction in customers resulting in 20%
reduction in revenue

CRM initiatives should aim at maintaining
relationships with value adding customers
Economics of Customer Retension

Incresed purchases over time

Lower customer management over time
(particularly with respect of B2B)

Customer refferral advantage

Opportunities for premium prices (up-selling)
Strategies for Customer Retension

Negative strategy

Positive strategy
Strategies for Customer Retension

Negative strategy:
– Penalize their exit from the relationship
– Swtching costs compells customers to remain
though not satisfied
– May result in negative WOM
Strategies for Customer Retension

Positive strategy:
– Reward customer for remaining in relationship
– Customer delight
• Occur when perceptions > expectations
– Kano's Customer Delight model
• Basic/linear/attractive qualities
– Methods to add customer perceived values:
• B2C: Loyalty schemes; Customer clubs; Sales
promotions
• B2B: Social and structural bonds (financial, legal,
technological, geographic, process, equity)
Impact of Context on Customer
Retension

Number of competitors

Corporate culture

Channel configurations

Purchasing practices

Corporate (ownership) expectations

Ethical conerns
Performance Indicators of Customer
Retention Programmes

Raw customer retention rate in each customer
segment

Sales-adjusted retention rate in each customer
segment

Profit adjusted retention rate in each customer
segment

Cost of customer retention

Share of wallet of retained customer segment

Customer churn rate per product category, sales
region or channel
Signals for Customer Churns

Reduced RFM score

Incresed dissatisfaction during customer handling

Company changes customer touch points

Customer changes address

Reduced share of customers

Increased queries from customers on the same issue
Strategies for Terminating Customer
Development

Raise prices

Unbundle the offer

Re-specify the product

Introduce ABC class of services

Reorganize sales and service

Tough terms and conditions