Customer Retention, Retaining Existing Customers

Sat, 08/06/2011 - 11:45 -- Umar Farooq

Companies seeking to grow their profit have to boost their sales. This requires exploring new markets and broadening their customer base. They then make vigorous effort to attract new customers.  For this purpose, they do all out effort ranging from advertising in the target market to personally keeping in touch with customers. The process goes like this.

  • They reach to possible PROSPECTS out of SUSPECTS through advertisements, personal contact or mail.
  • They check that which SUSPECT is really a PROSPECT.
  • These PROSPECTS are graded as hot, warm and cool. 
  • The sales people then first contact hot, then warm, and lastly cool PROSPECTS in order to affect sales.
  • These PROSPECTS then become 1ST TIME CUSTOMERS and then REPEAT CUSTOMERS before becoming CLIENT.

All the companies then want to retain these clients rather try to convert them into ADVOCATES. They concentrate on retaining their clients and prefer it to attracting new customers due to following reasons:

  1. The old customer (clients) have a level of loyalty that new don’t have
  2. It needs more skill to attract new customers than to retain old.
  3. Old customer buys more as new products are introduced by the company.
  4. They become source of advertisement for the company.
  5. Old customers of one company give less attention to competitors’ product.
  6. Old customers offer new ideas to the company.
  7. If old customer is lost, he can be a source of negative advertisement where as, it is not the case with the new customer.
  8. It is five times more costly to acquire new customer than to retain old.

There are the following steps involved in efforts to reduce the defection of the old customers.

  1. The company must define and measure its retention rate.
  2. The company must identify the causes of defection.
  3. The profit/loss involved in defection of the customer must be calculated.
  4. The company must estimate the cost involved in reducing the defection rate.

When company decides to go for reducing the defection rate, it must do the following:

  1. The company must measure the customers’ satisfaction regularly.
  2. They must try to exceed customer expectations.
  3. They must listen to the customers’ complaints.
  4. They must respond quickly and positively to these complaints.

As loyal customers account of company profit, a company should not risk losing him/ her. Instead they must concentrate on retention of the old customers. A 5% decrease in defection rate can increase profits by 25% to 85%. Besides the customer profit rate tends to increase over the life of the retained customer.