Advantages and Disadvantages of Customer Retention

Advantages of Customer Retention

Various advantages of Customer Retention are as discussed below: –

1. Cheaper than Acquisition: Foremost advantage of customer retention for every organization is that saves the cost involved in acquiring new customers. Customer retention is five times more economical than the acquisition process and thereby a most cost-effective method of maintaining a customer base. Several kinds of research have been conducted in the past which has favored retention over the acquisition process.
2. Loyal customers yield higher profits: Companies are able to yield higher profits by maintaining loyal customers. These customers make more frequent purchases and spend large in every transaction with their brand. Loyal customers do tend to shift frequently even if their brand raise price, they continue for long. However, every company need to be cautious while raising their prices as end goal is lifetime revenue not just today’s revenue.
3. More word of mouth referrals: Customer retention enable companies in getting large amount of referrals easily. Loyal customers serve as an important source of new business as they bring in large number of customers by referring them brand products. Peoples get attracted toward brand easily through referral of their friends and relatives despite various online and mobile marketing. 
4. Easy up-selling and cross-selling: Business find it easier in up-selling and cross-selling its products to group of loyal customers. Once people are satisfied with the services of particular brand; they like to explore more of its stuff. Customer don’t go for much analysis and comparison of brand products while making purchase decisions if they are assured of its quality.  
5. Loyal customers are more forgiving: Another major advantage of customer retention is that it enables in getting better co-operation from people. Loyal customers are more forgiving and they support their brand even if they get a poor service experience. Business get better support from its customers in its hard times that ensure its long-term continuity.
6. Better communication with customers: Customer retention is an effective tool available to business for establishing proper communication network with customer. Customer that engages with business for long term shares their valuable feedback with their brand. They communicate information regarding people’s demand and expectation from business that enables it in formulating effective policies. 

Disadvantages of Customer Retention

Disadvantages of customer retention are explained in points given below: –

1. Large investment in terms of price and time: Customer retention can prove expensive for business in the way that it involves large investment both in terms of price and time. It requires huge cost for running loyalty programs in order to retain customers for a longer period. Business need to sacrifice their profit by offering several discount and cashback offers to its audience. 
2. Require concerted commitment and Business Culture: Every business organization for attaining better customer retention rate should ensure a concerted commitment and proper culture. Every member working at distinct hierarchy of organization should focuses on providing best services to their customers. 
3. New customers may be overlooked: Organization making efforts for attaining efficient customer retention rate may not focus on needs of new customers. There may be chances of new clients being overlooked by brand in a hoard to satisfy its existing customers. Unsatisfied customers may spread negative piece of information about the brand in society.

Advantages and Disadvantages of Customer Retention PDF