Attracting and Retaining customers Wednesday, August 28, 2019

Customer Acquisition – This process is accomplished in 3 steps viz.,

Lead generation – to generate leads, the company develops ads and places them in media that will reach new prospects; its sales person participate in trade shows where they might find new leads and so on. All these produces a list of suspects.

Lead qualification – the next task is to qualify which of the suspects are really good prospects, and this is done by interviewing them, checking for there financials, and so on. The prospects may be graded as hot warm and cool. The sales people first contact the hot prospects and work on account conversion, which involves making presentations, answering objections and negotiating final terms.

Computing cost of lost customers –

Too many companies suffer from high customer churn namely they gain new customer only to lose many of them. Today companies must pay closer attention to their customer defection rate (the rate at which they lose customer).

The steps involved here are

A company must define and measure retention rate

The company must distinguish the causes of customer attrition and identify those that can be managed better. Not much can be done for customer who leave the region or go out of business but much can be done about the customer who leaves because of poor service shoddy products or high prices.

The company needs to examine the percentages of customer who defect for these reasons.

Third, the company needs to estimate how much profit it loses when it loses customer. In case of an individual customer the lost profit is equal to the customers lifetime value that is the present value of the profit stream that the company would have realized if the customer had not defected prematurely.

Fourth the company needs to figure out how much it would cost to reduce the defection rate. As long as the cost is less than the lost profit the company should spend the amount to reduce the defection rate.

The key to customer retention is customer satisfaction. A highly satisfied customer:

·         Stays loyal longer

·         Buys more as the company introduces new products or upgrades existing products

·         Talk favorably about the company and its products

·         Pays less attention to competing brand s and advertising and is less sensitive to price.

·         Offers product or service ideas to the company

Importance of retaining customers – The following statistics are helpful to this end

Acquiring new customers costs 5 times more than retaining old ones

A 5% reduction in customer defection can increase profits by 25% to 85%

Customer profit rates tend to increase over the lifetime of the customer.

The two ways of retaining a customer would be –

To erect high switching costs customers are less inclined to switch to another supplier when this would involve high capital costs, high search costs, or loss of loyal customer discounts.

Deliver high customer satisfaction

Quote : Marketing Management by Philip Kotler 10th Edition