Meaning of Customer Retention
Customer retention is the ability of an organisation to withhold its customers for a long time. It encompasses all those activities which reduce the customer’s defection rates of business. Higher customer retention rates means that companies are able to retain their customers for a long time. It increases the overall profitability of the business by making less effort.
Nature of Customer Retention
- Customer centric: Customer retention is a customer centric approach which aims at strengthening business relations with its clients. It ensures that customers are treated fairly by organization via offering them quality services. Business should not only focus on profit maximization by ignoring the interest of its present customers. They should be treated in such a way that leads to develop long-term relationship with them.
- Economical: Process of customer retention is more economical as compared to acquisition of new customers. It is more cost-effective technique of maintaining a customer base by organization as revealed by several researchers in past. Companies focusing on customer retention are not required to run wide marketing campaigns for attracting new customers. It saves large marketing cost of company as acquiring new clients may cost 5-25% more to an enterprise in comparison to existing customers.
- Consistent: Customer retention is a consistent process that need to be practiced by company regularly for maintaining a loyal customer base. In order to retain clients for a longer period of time, organization should serve them with utmost care as long as they continue purchasing with brands. Customer engage with brand as long as they get better shopping experience otherwise shift to other brands in market.
- Builds strong image: It is an effective tool available with business organization for developing a strong image among customers. Organization that treat their clients properly have more chances of engaging customers with them for longer term. This concept pays attention on specific needs of customers making them more satisfied. New audience gets easily attracted to such brands that run customer loyalty programs and enjoys better goodwill. Companies are able to enhance their position in market by serving customers in the most appropriate way.
- Higher profits: Customer retention has an effective role in raising the overall revenue of companies. Businesses by adopting this concept are able to hold on their customers for a longer period and develops a sense of loyalty among them. Loyal customers make frequent and repetitive purchases with brand. They explore more products and services of company and are even able to pay premium for them once they are satisfied with their brand services. This eventually raises the profit volume of enterprises.
Scope of Customer Retention
- Reduce Marketing Cost: This is one of the foremost benefit offered by customer retention as companies do not need to run mass wide marketing campaigns. Serving the present customer base effectively is cheaper for business in comparison to acquiring new customers. Companies do not need to target new audience if they are able to engage their existing customer base for long period. Loyal customers frequently buy brand products once they are satisfied with their service. Therefore, business shall focus on building a loyal customer base by offering better service.
- Brings more Referrals: Process of customer retention support business by offering them large number of word of mouth referral. Companies maintaining a happy and loyal customer base are able to attract large audience easily. Satisfied customers are more likely to refer their brand products to their family, friend and relatives. Peoples are largely attracted towards the brand referred to them by their known ones and are forced to try at least once.
- More Frequent Purchases: Customer retention enables business in maintaining a group of clients that makes frequent purchases. It strengthens relations in between business and its customers thereby building a sense of loyalty among them. Loyal customers explore various products of brand and buy them frequently. They are even willing to take goods and services even at higher prices once they are satisfied of their quality which leads to higher profitability for companies.
- Handle Competition: It is an effective tool available with companies for handling the challenges posed by their competitors in market. Customer retention enables corporations in developing strong bond with their customers that reduces the competition effect. Loyal and happy customer engages with their brand for a longer term and do not easily shift to other brands irrespective of offers provided by rivalries.
- Provide Room for Improvement: Customer retention assist organization in getting better support from their customers. When companies serve their clients in most effective way considering their individual wants, customers also support their brand in case they receive poor service. Satisfied customers provide more valuable feedback and suggestion to brands which enables them in improving their customer service. Business even get their customer’s support during hard times that ensure its long term continuity.