Research Papers on Customer Retention in Marketing - PDF

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Customer Retention
There are many such opportunities for this added revenue
– through renewal business, selling alternate products
and services to your installed base, cross-selling to
different divisions of a company through referrals, and
finally the latent boost given by positive branding.
Customer retention is easier than customer generation. In a marketplace that is saturated with competition, it is becoming
increasingly difficult to find and acquire new customers. Many businesses have successfully stayed afloat through even the
most trying economic conditions by investing a concerted effort into retention marketing – a practice that is becoming more
prevalent in business today. Retaining customers is particularly important to a business’ bottom line because of the high costs
associated with new customer acquisition. When you think of how much money is invested into sales and marketing efforts,
it begins making perfect sense to focus on existing clients for new revenue opportunities.

                                Customer Retention

                                                                      Retaining customers is particularly
                                                                      important to a business’ bottom line
                                                                      because of the high costs associated
                                                                      with new customer acquisition.
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One of the primary ways companies have been successfully keying in customer loyalty is by
conducting a survey of its current customers. Though many different methodologies for customer
surveys exist, one that has particularly taken the center stage in terms of efficacy and popularity
uses a measuring system called “Net Promoter Score,” or NPS. To determine its NPS, a company
surveys its clients using a 0-10 point scale with “0” representing the extreme negative and “10”
representing the highest rating. The respondents are divided into three categories:

Promoters                                            Passives                                         Detractors
Those who rate the company a 9 or 10                 Those who rate the company a 7 or 8              Those who rate the company 6 or below
Loyal enthusiasts who keep buying from               Satisfied, but unenthusiastic customers          Unhappy customers who feel they are
a company and urge their colleagues to               who can be easily courted / taken away           trapped in a less-than-acceptable business
do the same                                          by the competition                               relationship

The final NPS is then determined by subtracting the percent of
detractors from the percent of promoters, with fifty and above                      How likely is it that you would
considered good scores. This percentage represents the NPS, and
is similar to calculating the financial net worth of a company where                recommend this company to a
you subtract the liabilities from the assets.
                                                                                    friend or colleague?
The NPS similarly represents a “worth” of a company by
emphasizing customer loyalty as a key metric toward identifying
a company’s ability to grow. Is the NPS a proven indicator of
business success? In most industries, leaders in NPS have
displayed clear superiority in terms of growth – on average, more                    1     2     3    4    5    6    7     8    9 10
than two times the rate of their competition.

                                                                                         What, then, is rated on
It may come as a surprise that                                                           this 0-10 scale? What
the NPS survey requires only one                                                         questions might be asked?
question. Often coined “The Ultimate
Question,” the NPS survey asks:
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The Top Scores – Promoters
The concept heavily relies upon the fact that if customers can recommend a company
to their own friends, families and business associates, then the company must indeed
be offering a good product or service.
                                                                                            1   2   3       4       5   6    7    8   9 10
To place such an emphasis on one question really harkens back to one of the most
fundamental best practices of surveying: keep it short and simple. One question is
as simple as you can get! By doing so, it indeed elicits a higher rate of honest feedback
because it gives a respondent time to really consider their answer without dreading
another 10 pages of detailed questions.

The Middle Scores – Passives
What about the scores of 7 or 8? Why aren’t they considered promoters?

Many businesses who implement the NPS survey for the first time ask these questions.        1   2   3       4       5   6     7       8   9 10
Based on a scale of 0-10, these scores might be considered “positive. However, NPS
experts claim that although these people might provide renewed business, they won’t
actively be referring and spreading word to their peers about the company’s excellence.
Consequently, these “passives” do not contribute to new business and growth.

The Low Scores – Detractors
These customers are almost always unhappy with the current relationship they have with
                                                                                            1   2       3       4       5    6    7   8   9 10

the company and will likely not renew for future business.

Actionable Survey Insight
A common misconception is that the NPS is just a broad self-assessment metric.
Successful businesses, however, have been utilizing this metric as an integral part
of actual strategic, tactical and operational business processes that directly impact
a company’s profitability! What the Net Promoter Score provides is more than a
“satisfaction” measure. It provides guidelines toward carrying out certain specific
best practices that can be enacted upon to improve a company’s bottom line. Each
NPS-defined segment of customers (even the detractors) can be turned into positive
opportunities for a company.
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Action – Promoters
There are two main types of promoters: high-profit and low-profit.

High-profit promoters are the                      Low-profit promoters, on the other
customers that make up the lifeline                hand, are the loyal customers who are
of a company’s revenue stream. These               restricted for one reason or another
are the evangelists of your product and            from purchasing as much as they’d
services – and they also buy the most.             like. They should still be marketed to, but
High-profit promoters must be the                  in a different fashion. Additional products
target of very strong retention marketing          and services can be offered, but they
practices. Cross-selling to different              should not be over emphasized; the real
divisions of this company is simple                value in low-profit promoter companies
due to the existing rapport and positive           is their advocacy. Offering special pricing
relationships. Most likely, your current           and deals can help them spread the word
divisional client will provide a shining           and promote your company – possibly to
reference. You can also sell new products          other high-profit promoters!
and other services to this company,
and continue to maintain the excellent
relationship you have with them. If you
believe in the 80/20 rule, which claims
that 20% of your customers make up
80% of your profits, you better believe
that the high-profit promoters are holding
the keys to your company’s profits.

                                                     Action – Detractors
                                                     Like promoters, there are two types of detractors:
                                                     high-profit and low-profit.

                                                     High-profit detractors are often               The low-profit detractors represent
                                                     considered to be as important as the           those clients who you cannot please
                                                     high-profit promoters, simply because          within reason. While you might be willing
                                                     of the amount of revenue they provide          to lose some money making a high-profit
                                                     to a company. However, these customers         detractor happy, it is fundamentally
                                                     also feel they are trapped and stick around    unsound business to invest too much into
                                                     just because it’s comfortable to remain        a client that does not offer opportunities
                                                     within the status quo sphere. These are        for revenue. It is still important to
                                                     still very profitable customers, and           maintain a positive corporate image,
                                                     heavy action must be taken to retain           so it is best to help these unhappy
                                                     their business – especially because            customers find another provider.
                                                     these clients are extremely attractive
                                                     and profitable to your competition.
                                                     Rather than losing them, it is important
                                                     to conduct further satisfaction surveys
                                                     and follow up initiatives to find out what’s
                                                     bothering them, and to fix what is wrong.
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The Moral
The moral of the story is that true bottom-line profitability lies     Customer-loyalty guru Reichheld says that companies have to
within your current customers. A study by the Harvard Business         “get to the sane customers, the people who don’t waste their
School revealed, “Many companies are routinely surprised by                  ”
                                                                       time, and convince them that their input has value. That’s the
which customers are high-profit promoters, how much potential          key to turning a detractor into a promoter. “If customers are
for cross-sell exists among low-profit promoters, and how many                                   ”
                                                                       willing to promote you, he says, “that’s the clearest indication
detractors lurk in their portfolio. By implementing a quality survey   of loyalty. If they’re not going to promote you, follow up with
program in your company to identify your best customers, and           more questions to determine why – build a dialogue that turns
follow-up surveys to determine how to better serve those that          them into promoters.    ”
represent the highest profit, a company can dramatically increase
its bottom line.

                     Customer                                    Satis ed                               Pro ts
                     Survey                                      Customers

                               Satisfied customers, on the other hand, tell 5-6
                               other people about their positive experience.

Here are some interesting statistics we’ve published in our
past research, which are very relevant within this context:

  ` Increasing loyalty and customer retention by just 5% can
    increase profits by 75%
                                                                                              5%            Retention
  ` Most dissatisfied customers will eventually tell nine other
    people about their problem

  ` Only 4% of dissatisfied customers actually complain to the

  ` Satisfied customers, on the other hand, tell 5-6 other people

                                                                                       75% Pro t
    about their positive experience
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Use the Correct Technology to Make the
Survey Process Efficient
Many companies can provide a range of services to assist with the
implementation of a customer satisfaction program. Choosing the right
supplier is crucial to ensuring that such an initiative is carried out with
business value objectives in primary focus. A quality survey solution should
be able to streamline the integration of many of the aforementioned best
practices into your current business processes. Some things to look for:

An actual database of customer knowledge that dynamically
serves as a central repository for all your customer information
(survey history, transactional history, etc.)

  ` Real-time email alerts to address customer issues immediately

  ` Question scoring to use variable weighting on different dimensions
    of customer satisfaction

  ` An easy-to-use interface with a manageable learning curve

  ` Pre-survey consultation with real consultants and survey experts – not
    just software – that will ensure your deployment is on the right track

About Cvent
Cvent delivers the commercial-grade survey software solutions and services that organizations
and human resource departments need to cost-efficiently implement a comprehensive training
evaluation program. Established in 1999, Cvent is the largest strategic meetings management
and site selection company in the U.S., with over 750 employees worldwide. More than 90,000
professionals use Cvent per year to create over 275,000 internal and external surveys, events,
and marketing campaigns. Cvent’s users have sent over 850 million invitations and have
processed over 30 million registrations and survey responses. Over $25 million in research and
development has been invested into Cvent’s proven technology solution and services.
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