Chapter 1

Introduction of Customer retention

Customer retention refers to the ability of a company or product
to retain its customers over some specified period. High customer retention
means customers of the product or business tend to return to, continue to buy or
in some other way not defect to another product or business, or to non-use
entirely. Selling organizations generally attempt to reduce customer defections.
Customer retention starts with the first contact an organization has with a
customer and continues throughout the entire lifetime of a relationship and
successful retention efforts take this entire lifecycle into account. A companys
ability to attract and retain new customers is related not only to its product or
services, but also to the way it services its existing customers, the value the
customers actually generate as a result of utilizing the solutions, and the
reputation it creates within and across the marketplace.
Successful customer retention involves more than giving the
customer what they expect. Generating loyal advocates of the brand might mean
exceeding customer expectations. Creating customer loyalty puts customer
value rather than maximizing profits and shareholder value at the center of
business strategy. The key differentiation in a competitive environment is often
the delivery of a consistently high standard of customer service. Furthermore, in
the emerging world of Customer Success Retention is a major objective.
Customer retention has a direct impact on profitability. Research by John
Fleming and Jim As plund indicates that engaged customers generate 1.7 times
more revenue than normal customers, while having engaged employees and
engaged customers return a revenue gain of 3.4 times the norm. olume
There was a time when consumers were familiar with the merchants products,
and storekeepers knew their consumers and their needs. However, 19th and 20th
century technological developments provided buyers with greater market
opportunities and merchants slowly began to lose their local monopoly on
commerce. The personal merchant-consumer relationship gradually diminished
when technology provided shoppers with other options.
Customer relationship management (CRM) evolved when
businesses began to recognize the need to retain lost consumer knowledge. The
goal is to improve service and regain lost market share Customer retention is a
primary objective of CRM. Although most firms use CRM for new customer
acquisition, many believe the real value of CRM is customer retention . This
emphasis allows firms to learn meaningful information about the customer,
learn how to satisfy them, and determine how and why customers interact with
the company [16]. CRM also builds technical and non-technical communication

networks which strengthens the relationship between business and consumers .

Satisfaction, loyalty and commitment are three primary components of an
effective CRM-retention program. Each customers needs are different, and
CRM-retention would not be necessary if all customers were homogeneous.
CRM-retention identifies and helps retain valued customers, it helps increase
the customer base, and it utilizes pricing signals to encourage less profitable
consumers to become loyal and more profitable . Higher retention leads to
lower customer defection and higher profits. Lengthy customer relationships
reduce acquisition and business activity costs. This can be significant when new
customer acquisition costs are high . Moreover business relationships that foster
customer tenure can improve the firms efficiency as purchase volume increases
and relationship cost decrease .
While retention based CRM programs can provide intangible
benefits, organizations can enjoy economic benefits as well. CRM-retentions
return on investment is greater than ROI for CRM-new acquisition . There is a
direct relationship between retention and profitability. A one percent increase in
retention can have almost five times more impact on a firms financial
wellbeing than a one percent decrease in the cost of capital or discount rate[8].
Research also indicates a firm can gain a 25 percent net present value increase
with just a five percent increase in customer retention and boost profits from 25
to 85 percent .
1.Repurchase intentions are statistically significantly, and positively associated
with repurchase behavior: as people's repurchase intention increases, so does
their likelihood to actually repurchase the brand. However, the magnitude of the
association, though positive, is moderate to weaksuggesting that intentions an
and behaviors are not interchangeable constructs to measure customer retention.

2.The association between different retention metrics is not always

straightforward. It can be (a) non-linear exhibiting increasing or diminishing
returns, (b) different for different customer segments), and also vary by type
of industry.
3.Customer retention is a strong predictor of a firm's financial success, both
using accounting and stock market metrics. A study of a Brazilian bank
showed that bank branches that were more adept at efficiently satisfying and
retaining customers were more profitable than their counterparts that did one
or the other but not both.
In terms of measurement, the intention measures can typically be obtained using
scale-items embedded in a customer survey. The retention behaviors must be

measured using secondary data such as/ accounting measures of the (amount
and financial value) and frequency with which a customer purchases the firm's
goods or services. This requires that the firm should have a strong customer
information management department that can capture all the relevant metrics
that may be needed for analysis. In a typical firm, these may come from a
diverse set of departments such as accounting, sales, marketing, finance,
logistics, and other customer research.
Antecedents And drivers : Customer retention is an outcome that is the result of
several different antecedents as described below.
Customer satisfaction: Research shows that customer satisfaction is a direct
driver of customer retention in a wide variety of industries. Despite the claims
made by some one-off studies, the bulk of the evidence is unambiguously clear:
there is a positive association between customer satisfaction and customer
retention/ though the magnitude of the association can vary based on a whole
host of factors such as customer, product, and industry characteristics. Some
companies and individuals have created mathematical models to evaluate
customer satisfaction.
1. Customer delight: Some scholars argue that in today's competitive world,
merely satisfying customers is not enough; firms need to delight
customers by providing exceptionally strong service. It is delighted
customers who are likely to stay with the firm, and improve overall
customer retention. More recently, it has been argued that customer
delight may be more strongly applicable to hedonic goods and services
rather than for utilitarian products and services.
2. Customer switching costs: Burnham, Frels, and Mahajan(2003, p. 110)
define switching costs as one-time costs that customers associate with
the process of switching from one provider to another. Customers
usually encounter three types of switching costs: (1) financial switching
costs (e.g., fees to break contract, lost reward points); (2) procedural
switching costs (time, effort, and uncertainty in locating, adopting, and
using a new brand/provider); and (3) relational switching costs (personal
relationships and identification with brand and employees). A recent
meta-analysis examined 233 effects from over 133,000 customers and
found that all three types of switching costs increased customer retention
however, relational switching costs have the strongest association with
customer repurchase intentions and behavior.

3. Customer relationship management: Acknowledging the social and

relational aspectsespecially those embedded in servicesit has been
argued that firms can increase retention by focusing on managing
customer relationships. Relationship management occurs when firms can
take a longer-terms perspective, rather than a transactional perspective to
managing their customer base. However, it should be noted that all longterm customers are not profitable, and worth retaining; sometimes, short
term transactional customers can be more profitable for the firm.As such,
companies may have to strategically develop a framework to manage
unprofitable customers.
Customer lifetime value customer lifetime value enables an organization to
calculate the net present value of the profit an organization will realize on
a customer over a given period of time. Retention Rate is the percentage of
the total number of customers retained in context to the customers that
approached for cancelation.
Standardization of customer service
Published standards exist to help organizations deliver process-driven customer
satisfaction and Customer Success in order to increase the lifespan of a
customer. The International Customer Service Institute (TICSI) has released
The International Standard for Service Excellence (TISSE 2012). TISSE 2012
enables organizations to focus their attention on delivering excellence in the
management of customer service, whilst at the same time providing recognition
of success through a 3rd Party certification scheme. TISSE 2012 focuses an
organizations attention on delivering increased customer satisfaction by helping
the organization through a Service Quality Model. TISSE Service Quality
Model uses the 5 P's - Policy, Processes, People, Premises, Product/Service, as
well as performance measurement. The implementation of a customer service
standard leads to improved customer service practices, underlying operating
procedures and eventually, higher levels of customer satisfaction, which in turn
increases customer loyalty and customer retention.

a recent experience of the product or service. This assessment depends on prior

expectations of overall quality compared to the actual performance received. If
the recent experience exceeds prior expectations, customer satisfaction is likely
to be high. Customer satisfaction can also be high even with mediocre
performance quality if the customer's expectations are low, or if the
performance provides value (that is, it is priced low to reflect the mediocre

quality). Likewise, a customer can be dissatisfied with the service encounter and
still perceive the overall quality to be good. This occurs when a quality service
is priced very high and the transaction provides little value.
This model then looks at the strength of the business relationship; it proposes
that this strength is determined by the level of satisfaction with recent
experience, overall perceptions of quality, customer commitment to the
relationship, and bonds between the parties. Customers are said to have a "zone
of tolerance" corresponding to a range of service quality between "barely
adequate" and "exceptional." A single disappointing experience may not
significantly reduce the strength of the business relationship if the customer's
overall perception of quality remains high, if switching costs are high, if there
are few satisfactory alternatives, if they are committed to the relationship, and if
there are bonds keeping them in the relationship. The existence of these bonds
acts as an exit barrier. There are several types of bonds, including: legal bonds
(contracts), technological bonds (shared technology), economic bonds
(dependence), knowledge bonds, social bonds, cultural or ethnic bonds,
ideological bonds, psychological bonds, geographical bonds, time bonds, and
planning bonds.
This model then examines the link between relationship strength and customer
loyalty. Customer loyalty is determined by three factors: relationship strength,
perceived alternatives and critical episodes. The relationship can terminate if:
1. the customer moves away from the company's service area,
2. the customer no longer has a need for the company's products or services,
3. more suitable alternative providers become available,
4. the relationship strength has weakened,
5. the company handles a critical episode poorly,
6. unexplainable change of price of the service provided.
The final link in the model is the effect of customer loyalty on profitability. The
fundamental assumption of all the loyalty models is that keeping existing
customers is less expensive than acquiring new ones. It is claimed
by Reichheld and Sasser (1990) that a 5% improvement in customer
retention can cause an increase in profitability between 25% and 85% (in terms
of net present value) depending upon the industry. However, Carrol and

Reichheld (1992) dispute these calculations, claiming that they result from
faulty cross-sectional analysis.
According to Buchanan and Gilles (1990), the increased profitability associated
with customer retention efforts occurs because:

The cost of acquisition occurs only at the beginning of a relationship: the

longer the relationship, the lower the amortized cost.

Account maintenance costs decline as a percentage of total costs (or as a

percentage of revenue).

Long term customers tend to be less inclined to switch and also tend to be
less price sensitive.

Expanded models

Virtuous Circle
Schlesinger and Heskett (1991) added employee loyalty to the basic customer
loyalty model. They developed the concepts of "cycle of success" and "cycle of
failure". In the cycle of success, an investment in your employees ability to
provide superior service to customers can be seen as a virtuous circle. Effort
spent in selecting and training employees and creating a corporate culture in
which they are empowered can lead to increased employee satisfaction and
employee competence. This will likely result in superior service delivery and
customer satisfaction. This in turn will create customer loyalty, improved sales
levels, and higher profit margins. Some of these profits can be reinvested in
employee development thereby initiating another iteration of a virtuous cycle.
Feed Reichheld (1996) expanded the loyalty business model beyond customers
and employees. He looked at the benefits of obtaining the loyalty of suppliers,

employees, bankers, customers, distributors, shareholders, and the board of

directors.
Duff and Einig (2015) expanded the model to debt issuers and credit ratings
agencies to investigate what role commitment plays in issuer-CRA relations.
Satisfaction-profit-chain (SPC) model
The satisfaction-profit chain is a model that theoretically develops linkages and
then enables researchers to test them statistically for a firm using customer data
(both from surveys and other sources). The satisfaction-profit-chain was tested
in the context of banking industry showing that product and services
improvements indeed were associated with customer perceptions, which led to
beneficial customer behaviors such as repurchase, and desirable financial
outcomes such as increased sales and profitability The satisfaction-profit-chain,
as a methodology for managing customer loyalty and firm profitability, is also
applicable in business-to-business markets, irrespective of whether the B2B
firm sells goods and/or services.
The satisfaction-profit-chain refers to a chain of effects whereby increased
performance on key attributes leads to improvements in overall satisfaction,
which in turn affects loyalty intentions and behaviors. The increased customer
loyalty is shown to affect short- and long-term financial outcomes including
sales, profitability, and stock price. More recently, some studies show that
especially in the context of services such as retailing and financial services,
employee satisfaction can play a critical role in enhancing customer loyalty.
This happens because both customer satisfaction and employee satisfaction can
mutually reinforce each other, and promote stronger customer loyalty. More
specifically, for a given level of overall satisfaction, customer loyalty is
disproportionately stronger when customers perceive that employees are also
satisfied.
The SPC model has become the basis of a large body of empirical research
showing the strong impact of customer satisfaction on customer loyalty.
Research has clearly shown that one of the best ways to increase customer
loyaltymeasured as repurchase intentions and/or repurchase behavioris by
increasing customer satisfaction (more satisfied customers are more loyal, in
general).Though the relationship is positive, research shows there are many
differences:

1) The effect of customer satisfaction on customer loyalty can vary based on

customer demographics and segments, such that it is stronger for some
demographic groups and segments than others.
2) The effect of customer satisfaction and customer loyalty, and subsequent
financial outcomes for firms, can vary based on industry. Specifically, factors
such asgoods versus services industry, degree of competition or concentration
in the industry, the utilitarian or hedonic nature of products, and customers'
switching costs can affect the nature (non-linearity) and strength of the link
between customer satisfaction and customer loyalty.
3) The measurement of loyaltyespecially for customers is multi-faceted.
Customer loyalty includes a variety of outcomesintentions and behaviors
associated with repurchase including word-of-mouth,complaint
behaviors, share-of-wallet or the relative proportion of purchasing from a single
firm relative to customer's total purchasing,and likelihood to recommend.
4) Customer loyalty is influenced, not only by customer satisfaction but also
employee satisfaction. Customer loyalty is a function of customer satisfaction.
In many firms, especially service-oriented industries such as retailing, healthcare, financial services, education, and hospitality the level of satisfaction
experienced by front-line employees is a critical component. The level of
employee satisfaction influences customer satisfaction as shown in a large-scale
study of managers, front-line employees, and customers of a DIY retailer in
Europe:[15] results showed that managers affected overall job-satisfaction of
front-line employees, which in turn affected the satisfaction of customers they
interacted with. Most surprisingly, the level of customer loyalty was much
higher among those customers who were themselves more satisfied, but also
interacted with more satisfied employees. Highly satisfied customers who dealt
with relatively less satisfied employees were relatively less loyal.
Commitment-loyalty model
The customer commitment approach to loyalty is based on the idea that
customers with higher commitment toward the brand are also more likely to
be loyal toward the brand. Earlier models of customer commitment
conceptualized it as a unidimensional construct More recently, scholars have
developed a five dimensional scale to measure customer commitment and relate
it to customer loyalty. The five commitment dimensions include:

Affective commitment

Normative commitment

Economic commitment

Forced commitment

Habitual commitment

Customer satisfaction (often abbreviated as CSAT, more correctly CSat) is a

term frequently used in marketing. It is a measure of how products and services
supplied by a company meet or surpass customer expectation. Customer
satisfaction is defined as "the number of customers, or percentage of total
customers, whose reported experience with a firm, its products, or its services
(ratings) exceeds specified satisfaction goals."
The Marketing Accountability Standards Board (MASB) endorses the
definitions, purposes, and constructs of classes of measures that appear
in Marketing Metrics as part of its ongoing Common Language in Marketing
Project In a survey of nearly 200 senior marketing managers, 71 percent
responded that they found a customer satisfaction metric very useful in
managing and monitoring their businesses.
It is seen as a key performance indicator within business and is often part of
a Balanced Scorecard. In a competitive marketplace where businesses compete
for customers, customer satisfaction is seen as a key differentiator and
increasingly has become a key element of business strategy.
"Within organizations, customer satisfaction ratings can have powerful effects.
They focus employees on the importance of fulfilling customers' expectations.
Furthermore, when these ratings dip, they warn of problems that can affect sales
and profitability.... These metrics quantify an important dynamic. When
a brand has loyal customers, it gains positive word-of-mouth marketing, which
is both free and highly effective."
Therefore, it is essential for businesses to effectively manage customer
satisfaction. To be able do this, firms need reliable and representative measures
of satisfaction.
"In researching satisfaction, firms generally ask customers whether their product
or service has met or exceeded expectations. Thus, expectations are a key factor
behind satisfaction. When customers have high expectations and the reality falls

short, they will be disappointed and will likely rate their experience as less than
satisfying. For this reason, a luxury resort, for example, might receive a lower
satisfaction rating than a budget moteleven though its facilities and service
would be deemed superior in 'absolute' terms.
The importance of customer satisfaction diminishes when a firm has
increased bargaining power. For example, cell phone plan providers, such
as AT&T and Verizon, participate in an industry that is an oligopoly, where only
a few suppliers of a certain product or service exist. As such, many cell phone
plan contracts have a lot of fine print with provisions that they would never get
away if there were, say, 100 cell phone plan providers, because customer
satisfaction would be far too low, and customers would easily have the option of
leaving for a better contract offer.

purpose

A business ideally is continually seeking feedback to improve customer

satisfaction.
"Customer satisfaction provides a leading indicator of consumer purchase
intentions and loyalty." "Customer satisfaction data are among the most
frequently collected indicators of market perceptions. Their principal use is
twofold:"
1. "Within organizations, the collection, analysis and dissemination of these
data send a message about the importance of tending to customers and
ensuring that they have a positive experience with the company's goods
and services." "Although sales or market share can indicate how well a
firm is performing currently, satisfaction is perhaps the best indicator of
how likely it is that the firms customers will make further purchases in
the future. Much research has focused on the relationship between
customer satisfaction and retention. Studies indicate that the
ramifications of satisfaction are most strongly realized at the extremes."

On a five-point scale, "individuals who rate their satisfaction level as '5' are
likely to become return customers and might even evangelize for the firm. (A
second important metric related to satisfaction is willingness to recommend.
This metric is defined as "The percentage of surveyed customers who indicate
that they would recommend a brand to friends." When a customer is satisfied
with a product, he or she might recommend it to friends, relatives and
colleagues. This can be a powerful marketing advantage.) "Individuals who rate
their satisfaction level as '1,' by contrast, are unlikely to return. Further, they can
hurt the firm by making negative comments about it to prospective
customers. Willingness to recommend is a key metric relating to customer
satisfaction."[1]
Theoretical Ground
"In literature antecedents of satisfaction are studied from different aspects. The
considerations extend from psychological to physical and from normative to
positive aspects. However, in most of the cases the consideration is focused on
two basic constructs as customers expectations prior to purchase or use of a
product and his relative perception of the performance of that product after
using it.
Expectations of a customer on a product tell us his anticipated performance for
that product. As it is suggested in the literature, consumers may have various
"types" of expectations when forming opinions about a product's anticipated
performance. For example, four types of expectations are identified by Miller
(1977): ideal, expected, minimum tolerable, and desirable. While, Day (1977)
indicated among expectations, the ones that are about the costs, the product
nature, the efforts in obtaining benefits and lastly expectations of social values.
Perceived product performance is considered as an important construct due to
its ability to allow making comparisons with the expectations.
It is considered that customers judge products on a limited set of norms and
attributes. Olshavsky and Miller (1972) and Olson and Dover (1976) designed
their researches as to manipulate actual product performance, and their aim was
to find out how perceived performance ratings were influenced by expectations.
These studies took out the discussions about explaining the differences between
expectations and perceived performance."
In some research studies, scholars have been able to establish that customer
satisfaction has a strong emotional (i.e., affective component).[5] Still others

show that the cognitive and affective components of customer satisfaction

reciprocally influence each other over time to determine overall satisfaction.[6]
Especially for durable goods that are consumed over time, there is value to
taking a dynamic perspective on customer satisfaction. Within a dynamic
perspective, customer satisfaction can evolve over time as customers repeatedly
use a product or interact with a service. The satisfaction experienced with each
interaction (transactional satisfaction) can influence the overall, cumulative
satisfaction. Scholars showed that it is not just overall customer satisfaction, but
also customer loyalty that evolves over time.[7]
The Disconfirmation Model
"The Disconfirmation Model is based on the comparison of customers
[expectations] and their [perceived performance] ratings. Specifically, an
individuals expectations are confirmed when a product performs as expected. It
is negatively confirmed when a product performs more poorly than expected.
The disconfirmation is positive when a product performs over the
expectations(Churchill &Suprenant 1982). There are four constructs to describe
the traditional disconfirmation paradigm mentioned as expectations,
performance, disconfirmation and satisfaction." [4] "Satisfaction is considered as
an outcome of purchase and use, resulting from the buyers comparison of
expected rewards and incurred costs of the purchase in relation to the
anticipated consequences. In operation, satisfaction is somehow similar to
attitude as it can be evaluated as the sum of satisfactions with some features of
product." [4] "In the literature, cognitive and affective models of satisfaction are
also developed and considered as alternatives(Pfaff, 1977). Churchill and
Suprenant in 1982, evaluated various studies in the literature and formed an
overview of Disconfirmation process in the following figure:" [4]
Construction
Organizations need to retain existing customers while targeting non-customers.
[8]
Measuring customer satisfaction provides an indication of how successful the
organization is at providing products and/or services to the marketplace.
"Customer satisfaction is measured at the individual level, but it is almost
always reported at an aggregate level. It can be, and often is, measured along
various dimensions. A hotel, for example, might ask customers to rate their
experience with its front desk and check-in service, with the room, with the

amenities in the room, with the restaurants, and so on. Additionally, in a holistic
sense, the hotel might ask about overall satisfaction 'with your stay.'"[1]
As research on consumption experiences grows, evidence suggests that
consumers purchase goods and services for a combination of two types of
benefits: hedonic and utilitarian. Hedonic benefits are associated with the
sensory and experiential attributes of the product. Utilitarian benefits of a
product are associated with the more instrumental and functional attributes of
the product (Batra and Athola 1990).[9]
Customer satisfaction is an ambiguous and abstract concept and the actual
manifestation of the state of satisfaction will vary from person to person and
product/service to product/service. The state of satisfaction depends on a
number of both psychological and physical variables which correlate with
satisfaction behaviors such as return and recommend rate. The level of
satisfaction can also vary depending on other options the customer may have
and other products against which the customer can compare the organization's
products.
Work done by Parasuraman, Zeithaml and Berry between 1985 and 1988
provides the basis for the measurement of customer satisfaction with a service
by using the gap between the customer's expectation of performance and their
perceived experience of performance. This provides the measurer with a
satisfaction "gap" which is objective and quantitative in nature. Work done by
Cronin and Taylor propose the "confirmation/disconfirmation" theory of
combining the "gap" described by Parasuraman, Zeithaml and Berry as two
different measures (perception and expectation of performance) into a single
measurement of performance according to expectation.
The usual measures of customer satisfaction involve a survey using a Likert
scale. The customer is asked to evaluate each statement in terms of their
perceptions and expectations of performance of the organization being
measured.
Good quality measures need to have high satisfaction loadings, good reliability,
and low error variances. In an empirical study comparing commonly used
satisfaction measures it was found that two multi-item semantic
differential scales performed best across both hedonic and utilitarian service
consumption contexts. A study by Wirtz& Lee (2003) found that a six-item 7point semantic differential scale (for example, Oliver and Swan 1983), which is
a six-item 7-point bipolar scale, consistently performed best across both hedonic

and utilitarian services. It loaded most highly on satisfaction, had the highest
item reliability, and had by far the lowest error variance across both studies. In
the study,[13]the six items asked respondents evaluation of their most recent
experience with ATM services and ice cream restaurant, along seven points
within these six items: pleased meto displeased me, contented
with to disgusted with, very satisfied with to very dissatisfied with, did a
good job for me to did a poor job for me, wise choice to poor choice and
happy with to unhappy with. A semantic differential (4 items) scale (e.g.,
Eroglu and Machleit 1990),[14] which is a four-item 7-point bipolar scale, was
the second best performing measure, which was again consistent across both
contexts. In the study, respondents were asked to evaluate their experience with
both products, along seven points within these four items:
satisfied to dissatisfied, favorable to unfavorable, pleasant to unpleasant
and I like it very much to I didnt like it at all.[13] The third best scale was
single-item percentage measure, a one-item 7-point bipolar scale (e.g.,
Westbrook 1980).[15] Again, the respondents were asked to evaluate their
experience on both ATM services and ice cream restaurants, along seven points
within delighted to terrible.[13]
Finally, all measures captured both affective and cognitive aspects of
satisfaction, independent of their scale anchors.[13] Affective measures capture a
consumers attitude (liking/disliking) towards a product, which can result from
any product information or experience. On the other hand, cognitive element is
defined as an appraisal or conclusion on how the products performance
compared against expectations (or exceeded or fell short of expectations), was
useful (or not useful), fit the situation (or did not fit), exceeded the requirements
of the situation (or did not exceed).
Recent research shows that in most commercial applications, such as firms
conducting customer surveys, a single-item overall satisfaction scale performs
just as well as a multi-item scale.[16] Especially in larger scale studies where a
researcher needs to gather data from a large number of customers, a single-item
scale may be preferred because it can reduce total survey error.[17]
Methodologies[edit]
American Customer Satisfaction Index (ACSI) is a scientific standard of
customer satisfaction. Academic research has shown that the national ACSI
score is a strong predictor ofGross Domestic Product (GDP) growth, and an
even stronger predictor of Personal Consumption Expenditure (PCE) growth.
[18]
On the microeconomic level, academic studies have shown that ACSI data is

related to a firm's financial performance in terms of return on investment (ROI),

sales, long-term firm value (Tobin's q), cash flow, cash flow volatility,human
capital performance, portfolio returns, debt financing, risk, and consumer
spending.[19][20] Increasing ACSI scores has been shown to predict loyalty, wordof-mouth recommendations, and purchase behavior. The ACSI measures
customer satisfaction annually for more than 200 companies in 43 industries
and 10 economic sectors. In addition to quarterly reports, the ACSI
methodology can be applied to private sector companies and government
agencies in order to improve loyalty and purchase intent.[21]ASCI scores have
also been calculated by independent researchers, for example, for the mobile
phones sector,[22] higher education,[23] and electronic mail.[24]
The Kano model is a theory of product development and customer satisfaction
developed in the 1980s by Professor Noriaki Kano that classifies customer
preferences into five categories: Attractive, One-Dimensional, Must-Be,
Indifferent, Reverse. The Kano model offers some insight into the product
attributes which are perceived to be important to customers.
SERVQUAL or RATER is a service-quality framework that has been
incorporated into customer-satisfaction surveys (e.g., the revised Norwegian
Customer Satisfaction Barometer[25]) to indicate the gap between customer
expectations and experience.
J.D. Power and Associates provides another measure of customer satisfaction,
known for its top-box approach and automotive industry rankings. J.D. Power
and Associates' marketing research consists primarily of consumer surveys and
is publicly known for the value of its product awards.
Other research and consulting firms have customer satisfaction solutions as
well. These include A.T. Kearney's Customer Satisfaction Audit process,
[26]
which incorporates the Stages of Excellence framework and which helps
define a companys status against eight critically identified dimensions.
For B2B customer satisfaction surveys, where there is a small customer base, a
high response rate to the survey is desirable.[27] The American Customer
Satisfaction Index(2012) found that response rates for paper-based surveys were
around 10% and the response rates for e-surveys (web, wap and e-mail) were
averaging between 5% and 15% - which can only provide a straw poll of the
customers' opinions.

In the European Union member states, many methods for measuring impact and
satisfaction of e-government services are in use, which the eGovMoNet project
sought to compare and harmonize.[28]
These customer satisfaction methodologies have not been independently audited
by the Marketing Accountability Standards Board (MASB) according to MMAP
(Marketing Metric Audit Protocol).
definition
An assessment of the product or service quality provided by a business that
measures how loyal its customers are. Customer retention statistics are typically
expressed as a percentage of long term clients, and they are important to a
business since satisfied retained customers tend to spend more, cost less and
make valuable references to new potential customers.

What do you mean by customer retention?

Customer retention is the activity that a selling organization undertakes in order
to reduce customer defections. Successful customer retention starts with the first
contact an organization has with a customer and continues throughout the entire
lifetime of a relationship.
What is a good customer retention rate?
Customer retention is more than giving the customer what they expect, it's
about exceeding their expectations so that they become loyal advocates for your
brand. Creating customer loyalty puts 'customer value rather than maximizing
profits and shareholder value at the center of business strategy'.

Chapter
What is customer retention?
Customer retention rate is how well a company keeps its paying customers over a period of time. Peter
Drucker once said the purpose of a business is to make and keep a customer. Retention deals with the

latter.

A low retention rate is similar to filling a bucket with holes in the bottom

sure, you could keep piling on to make up for it, or you could figure out what caused the holes and how you
can patch them up. Retaining customers costs less than acquiring them, and both add to your companys
bottom line; revenue doesnt care where it comes from, earned or saved

How to improve your customer retention

rate
At Help Scout, we're all about building relationships with customers, but we also believe that great
customer service, engagement, and education are more than just the right thing to do theyre also good
for business.

In order to help you increase your own retention rates, we've compiled

a list of our 20 favorite techniques, many backed by academic research and case studies, on increasing
customer loyalty, divided into five easy-to-browse sections.

Tactics for product and brand positioning

It's hard to retain customers if they aren't even paying attention to you. Below are our favorite bits of
research on how clear communication and messaging helps create engagement and loyal customers.

1. Stand for something

Customers are more likely to ignore you if your company doesnt stand for anything. Research from the
Corporate Executive Board that included 7,000 consumers from across the U.S. found that of those
consumers who said they had a strong relationship with a brand, 64 percent cited shared values as the
primary reason. If you want loyal customers, you need create real connections with them. What do you
stand for?

2. Utilize positive social proof

While negative social proof ("Nearly 90 percent of websites don't use heat mapping software!") has been
proven to dissuade customers rather than encourage them, numerous studies on customer motivation have
shown that positive social proof (like testimonials) are commonly the most effective strategy for getting
people to listen.

3. Invoke the inner ego

Most people prefer products and companies that resemble them in some way. This cognitive bias is called
implicit egotism, and is an important thing to keep in mind when talking to customers. To attract the

customers you want, you need to identify your target customers down to the last detail, then craft a message
that matches their pains, goals and aspirations. It's easier to fill this existing demand than to create one.

4. Position around the before and after

This is your world before our product, and this is your world after. Providing a contrast for customers can
make for powerful marketing, but first you have to understand where they are (how they describe their
pain) and where they want to be (how they frame their solution). Speak to that, and show how your product
can bridge the gap, and youll catch their interest.

Tactics for customer marketing and education

If customers don't enjoy your education, marketing, and sales process, they'll likely never do business with
you again. Selling to customers the right way is an integral part of creating customer loyalty. Below are a
few studies to help you improve the process.
5. Use the words they love to hear
Not all words are created equal. Certain words encourage customers to buy more than others. In particular:
free, new and instantly. When customers hear these words, and the promises they imply are backed up,
they'll enjoy their purchases more than they would have otherwise.

6. Reduce pain points and friction

All businesses, no matter the industry, are going to have to sell to the three types of buyers that are out
there. According to research from Wharton Business School, nearly a quarter of these buyers will be
conservative spenders, or "tightwad" customers. George Loewenstein of Carnegie Mellon University
recommends using bundles, reassuring words (e.g., change "a $5 fee" to "a small $5 fee") and reframing as
a better way to sell to conservative buyers.

7. Capture your products momentum

When exciting improvements are being made to your product, everyone in the company feels the
momentum. But do your customers feel the same way? They wont unless you take the time to share your
work. Today this often falls under the growing list of product marketing responsibilities, but either way its
the execution that counts. Create excitement with current customers by showing them what your latest
features let them accomplish.

8. Dont just sell, educate

According to serial entrepreneur David Skok, sales is often more effective when you have an existing
relationship with a customer, and when youve already provided value. This matches up with research from
TARP Worldwide, which shows customers do enjoy receiving helpful recommendations on new information
and products that will help them achieve better results.

Delivering surprise reciprocity and delight

Reciprocity is the social construct that makes the world go 'round and keeps customers coming back. The
premise for is simple: when delighting customers makes sense, its best served up as a surprise.

9. You dont have to overspend to delight

Handing out discounts and freebies can be costly. Instead, you should embrace the art of the frugal wow
creating reciprocity through small, thoughtful gestures. In fact, psychologist Norbert Schwarz found that as
little as 10 cents can create reciprocity between two individuals (it really is the thought that counts).

10. Utilize surprise reciprocity

Although reciprocity works incredibly well on it's own, research shows its far more powerful when started
by surprise. For a simple example, recall a time that someone did something nice for you unexpectedly
the gesture probably wasn't all that unusual, but the fact that it came out of nowhere left a strong
impressioyou. Thank you notes and proactive emails and messages are a nice, lightweight way to put this
into action. For more ideas, check out 25 Ways to Thank Your Customers.

11. Make it personal

In a study from the Journal of Applied Social Psychology, researchers found that waiters and waitresses
could increase their tips by 23 percent by the simple act of returning to tables with a second set of mints.
The researchers concluded that the mints created the feeling of a personalized experience for the customers
who received them. So, it was the personalized service that made their day, not the small gift in itself.

12. Reduce effort before delivering delight

Many companies assume exceptional customer service can only be achieved by going above-and-beyond;
that loyalty is built on showy gestures. According to research from Dixon, Toman, and DeLisi published in
The Effortless Experience, the true driver of customer retention and loyalty is the ease of getting a problem
solved delight isnt the foundation of a customer service strategy, but rather a second-order effect. First,
focus on consistently meeting expectations and avoiding unpleasant surprises. Then go the extra mile.

How great service retains customers

You can't build customer loyalty without an exceptional customer service to keep people coming back. Lets
debunk a few customer service myths, as well as tackle some important things you need to keep in mind
when offering support online.

13. Speed is secondary to quality

When it comes to highly rated customer service, data show that quality and completeness matter more than
speed. According to research from the Gallup Group, customers were nine times more likely to be engaged
with a brand when they evaluated the service as "courteous, willing, and helpful," versus the "speedy"
evaluation, which only made customers six times more likely to be satisfied.

14. Customers enjoy businesses who know them

Telling your team to spend more time with customers might seem like folly, but smart entrepreneurs know
that isn't the case. Numerous behavioral psychology studies have shown that everybody views their service
experience as more positive when they don't feel rushed or ignored. Don't spend time idly, though; have
employees attempt to find out key customer traits, just like Derek Sivers did at CDBaby.

15. Choose the right platform

The best way to improve your customer service efforts is to utilize the channel your customers most prefer.
Recent research has shown the death of email support has been greatly exaggerated. However, you need to
pick the channel that makes the most sense for your business. Hosting companies, for example, know that
live chats are critical when their customers sites go down; other companies may have customers who prefer
using self-service, or even phone support.

16. Make it a communal effort

Countless case studies have made one thing clear when it comes to creating an efficient support system:
You need to keep everybody in the loop. At Help Scout, we use our integration with Slack to access real-time
notifications of what's happening on the customer end; we were able to improve our response time by 340
percent by creating a support channel for all of our teammates.

17. Support should solve cause and effect

It isnt enough for your customer service team to apologize; their main goal should be to solve for the
immediate problem, but to also find and flag the root cause. In doing so, they can solve a systemic issue and
help other customers avoid it altogether. Reducing problems is key in fact, research conducted by John
Goodman found that customers were much more sensitive to price changes, and thus more likely to churn,
when they experienced a few problems with the product (or the support they received).
18. Get people started
Consumer researchers Joseph Nunes and Xavier Dreze are known for their studies on the Endowed
Progress Effect. Their results have conclusively shown that the biggest pitfall in preventing customer loyalty
programs from succeeding is getting people started. In their now famous car wash study, participants were
twice as likely to finish loyalty cards when they were automatically started (or rewarded) as soon as they
signed up.

19. Get ideal customers to be VIPs

Additional research by Dr. Nunes on retention programs has shown that people love being VIP, or gold
members. There is one caveat, though this only works when people know there is a class below them on
the totem pole. Speaking to human nature, Nunes saw a notable increase in gold members participation as
soon as he implemented a silver class.
20. Label your customers
Research on voting patterns conducted by Stanford University revealed people are more likely to
participate in something if they are labeled with a positive trait. Buffer refer to their premium customers as
"awesome" members, and even named their upgraded payment plan the Awesome Plan a much easier
phrase to embrace than "paid member."