Customer Retention

By Saurabh Chaturvedi
D.E. ( BS-Electrical)
ALTTC, Ghaziabad

Introduction

After four and half year of corporatisation of BSNL, a customer-focused

approach among its employees is still not present. In this era of
intense competition, it is very important for any service company to
understand that merely acquiring customers is not sufficient because
there is a direct link between customer retention over time and
profitability & growth. Customer retention to a great extent depends
on service quality and customer satisfaction. It also depends on the
ability of the organization to encourage customers to complain and
then recover when things go wrong. Complaints are natural part of any
service activity as mistakes are an unavoidable feature of all human
endeavor and thus also of service recovery. Service recovery is the
process of putting things right after something goes wrong in the
service delivery.

Importance of Customer Retention

Why are customers more profitable for service firms over a period of
time? There are a number of reasons for this. To begin with, to acquire
a customer a company incurs promotional costs like advertising, sales
promotion etc. It is said that it costs five times more to attract a
new customer than retaining one. The operating cost decreases
when a customer stays. Services being rich in experience and credence
qualities, it takes some time for customers to get accustomed to it and
once they are used to the service and are satisfied with the service
provider ,they tend to purchase more over a period of time.

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As they remain satisfied with a service provider, they spread a positive
word of mouth, which is very effective in case of services for attracting
new customers. Longer the customer stays with an organization, more
the organization knows about him, which enables it to offer customized
services which make it difficult for the customer to defect. This may
even provide opportunities to the organization to charge price
premium by offering individualized services which may be difficult for
the competitors to offer.

Considering the importance of retaining customers in service business,

Reichheld & Sasser coined a term ‘Zero Defection’. They highlighted
that companies can boost profits by almost 100% by retaining just 5%
more of their customers. Further, it is also very important to
understand the life time value of a customer. For example, if an
average customer of BSNL pays Rs. 500 per month and stays with the
company for 20 years., his average lifetime value will be Rs. 500x 12x
20=Rs. 1,20,000. Further, if by a positive word of mouth, he brings
just one more customer to the organization, his value to the
organization doubles. Therefore, it is important for all the employees in
the organization to understand the life time value of their customers.
Once they understand it, they will treat the customer accordingly and
will focus on building relationship with the very people who keep them
in business.

Reasons for customer Switching

The reasons for customer switching can be identified as following:

1. Pricing (High price, unfair pricing, deceptive pricing)

2. Inconvenience (Wait for service, wait for appointment)
3. Core service failure (Service mistakes, Billing errors)
4. Service encounter failure (Uncaring, impolite, unresponsive
behavior)

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 5. Response to service failure (Negative response, no response,
reluctant response)
6. Competition (Found better service)
7. Ethical problem (Cheating, Unsafe)
8. Involuntary switching (customer moved, provider closed)

An important aspect of the above is that six out of the eight service
switching factors are controllable from a service organization’s point of
view.

Strategies for Customer Retention

(A) Complaint Management System

Any worthwhile complaints management system has to have following

basic features:

a) Visibility: Customer should know where to complain.

b) Accessibility: Customer should know how to complain. As a
rule of thumb, the more formal the system for lodging
complaints, the less accessible it is to customers.
c) Responsiveness: Complaints need to be dealt quickly. The
quicker the complaints are dealt with, the higher the customer
satisfaction.
d) Customer-focused approach: A service provider who adopts
customer-focused approach, invites complaints and indicates
commitment of resolving complaints by its words and actions in
all fairness.
e) Accountability: Someone in the organization has to take
responsibility for complaint handling.
f) Continuous Improvement: This is about looking at the root
causes and fixing them.

A good complaint management system must ensure that that

complainant is kept informed, the staff understands the complaint

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processes, complaints are taken seriously and employees are
empowered to deal with situations.

(B) Service Recovery Strategies

Consider the following incident regarding an airlines (British Airways).

“An aircraft door was left open in a rainstorm before take off and a
passenger near the door unfortunately got showered. The flight
attendant not only did everything that was routine- offered to have
the customer’s garments cleaned and made sure that a customer
relations representative contacted the customer later to demonstrate
that they genuinely cared- but also made special gesture by offering
the passenger a complimentary choice of certain tax free goods.”

It is very important for service companies to have service recovery

strategies which can be applied in case of service failure. The following
steps are useful in an effective service recovery system.

1. Measure the costs of effective service recovery. It should include

the indirect cost also, when a customer departs unhappily.
2. Break customer silence and listen closely for complaints.
3. Act fast.
4. Train and empower employees. The front line people must be
trained and empowered by the organization.
5. Close the customer feedback loop.

(C) Managing Customer Waiting

Sometimes, it is not possible to match demand & capacity, and hence

waiting by customers becomes inevitable. While reducing waiting time
is important for a marketer, it is equally if not more, important to
reduce the customer’s perceived waiting time. If a customer’s
perceived waiting time is less, he will be more satisfied with the
service.
Various ways of managing customer waiting are as follows:

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1. The organization should analyze its operational processes in
order to identify and remove inefficiencies or bottlenecks, if any.
2. In case waiting cannot be avoided, a reservation system can be
used.
3. Since unoccupied time feels longer than occupied time, keep
customer occupied by installing distractions that entertain and
physically involve them. For example, TV sets, magazines
reading material can be provided in waiting area.
4. Provide ‘waiting duration information’ i.e. information about the
expected length of wait and/or ‘queuing information’ i.e. a
customer’s position in queue with continuous update.
5. If unexpected delays occur, explanation should be given to the
customer. This helps in reducing uncertainty and customer
irritation. The key is to impress upon the customer that he has
not been forgotten. Simple things like providing a glass of water
or a cup of tea to the waiting customer can do wonders.
6. Keep resources not serving customer out of sight. This can be
done by keeping idle employees out of view and conducting
activities that do not involve customer interactions out of
customer’s sight.
7. Try to reduce pre-service waiting time by transferring some of
the pre-service waiting to the service encounter phase.
8. A smiling service person who knows his job well can be very
helpful in overcoming many negative effects of waiting.
Therefore, training and incentive/ rewards for providing good
service should be made.

Conclusion
Today’s customers are becoming harder to please. They are
smarter, more price conscious, more demanding, less forgiving and
they are approached by many more competitors with equal or
better offers. The challenge is not to produce satisfied customers;
several competitors can do this. The challenge is to produce
delighted and loyal customers. If these customers are retained

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with the organization, they become really profitable by way of
increase in purchasing, reduced operating costs, price premiums
and through referrals. Too many companies suffer from customer
churn i.e. high customer defection. It is like adding water to a
leaking bucket. Various strategies such as measuring customer life
time value, efficient complaint management system and service
recovery strategies can be really helpful in retaining customers.