CUSTOMER RETENTION & CUSTOMER WIN-BACK STRATEGIES

“Update on non-monetary approach to integrate

customers with strong emotional ties to become sustainable
clients”
29th -30th April 2009
At Grand Sukhumvit Hotel
Bangkok

By:
Assist. Prof. Dr. Burin T. Sriwong
Director of Social and Health
System Management Program,
Faculty of Pharmacy,
Silpakorn University
 Overview
 Definition
 Understand non-monetary approach
 Key factors of non-monetary approach
 Tools and techniques for customers’ emotional building
and loyalty
 Establishing non-monetary program and set up goal micro
and macro level
 How to measure cost-effectiveness and find indicators to
evaluate program

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Definition

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What is Loyalty?

 Loyalty is a deeply held commitment to re-buy or re-

patronize a preferred product or service in the future
despite situational influences and marketing efforts
having the potential to cause switching behavior.

(Philip Kotler 2509)

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Customer Retention Strategy

 Customer Retention strategy is the activity that the selli

ng organization undertakes to reduce customer account
defection.

 The success of this activity is when the customer

account places an additional order before a 12-month
period has expired. Note that ideally these orders will
need to contribute similar financial amounts to the
previous 12 months.

 It can also be described as a series of actions that the

selling organization undertakes to reduce defections.

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Customer Win-back Strategy

 Customer Win-back Strategy can mean anything from

trying to recover a once valuable customer to trying to
restart a relationship with a once-promising prospect

(John Gaffney 2009)

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Customer Win-back
 Customer Acquisition Strategy: กลยุทธ์ในการหา การทำให ้ได ้
ลูกค ้ามา ซงึ่ ก็คอ ่ ระป๋ องจากด ้านบน
ื การเติมน้ำใสก

 Customer Retention Strategy กลยุทธ์เพือ ่ การรักษาลูกค ้าเหล่า

นัน
้ ไว ้ให ้ได ้ ก็คอ
ื การอุดรูรั่วทีก
่ ระป๋ อง ไม่ให ้น้ำในกระป๋ องไหลออก
ไป

 Customer Win-Back Strategy กลยุทธ์เพือ ่ เอาชนะใจและดึงอดีต

ลูกค ้า ให ้กลับมาเป็ นลูกค ้าอีก ซงึ่ มีความสำคัญไม่น ้อยไปกว่าสอง
ข ้อแรก โดยเฉพาะในโลกการตลาดทีเ่ สมือนกำลังทำสงครามแย่งชงิ
ลูกค ้ากัน

(อนุชิต เทีย่ งธรรม Marketeer ฉบับที่ 36 กุมภาพันธ์   2546)

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Understand non-monetary approach

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Understand non-monetary approach

 Non-monetary approach are used to reward participants

for excellent behavior through opportunities.

 Non-monetary incentives may include flexible work

hours, payroll or premium contributions, training, health
savings or reimbursement accounts, or even paid
sabbaticals.

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Key factors of non-monetary approach

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Key factors of non-monetary approach
Figure 1: Mapping between relationship motives and values

Source: Bernd Heinrich. “Transforming strategic goals of CRM into process goals and activities” Business
Process Management Journal,Vol.11, No. 6, 2005, pp: 709-723 10
Tools and techniques for customers’
emotional building and loyalty

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 Tools and techniques for customers’
emotional building and loyalty
Figure 2 :The Wheel of Loyalty

3. Reduce 1. Build a
Churn Drivers Foundation
for Loyalty
 Conduct churn diagnostic
 Segment the market
 Address key churn drivers
 Be selective in acquisition
Enabled through:  Implement complaint
 Frontline staff handling and service  Use effective tiering
of service.
 Account recovery Customer
managers  Increase switching  Deliver quality
 Membership costs
Loyalty service.
programs
 CRM
Systems 2. Create Loyalty
Bonds
 Build higher  Deepen the
level bonds relationship
 Give loyalty
rewards

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1. Building a Foundation for Loyalty

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Customer Needs and
Company Capabilities

 Identify and target the right customers

 How do customer needs relate to operations elements?

 How well can service personnel meet expectations of different
types of customers?
 Can company match or exceed competing services that are
directed at same types of customers?

 Should result in a superior service offering in the eyes

of those customers who value what firm has to offer

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Searching for Value—Not Just
Volume

 Focus on number of customers served as well as value of

each customer
 Heavy users who buy more frequently and in larger volumes are
more profitable than occasional users
 Avoid targeting customers who buy based on lowest price

• Firms that are highly focused and selective in their

acquisition of customers grow faster
• “Right customers” are not always high spenders
 Can come from a large group of people that no other supplier is
serving well

• Different segments offer different value

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 Effective Tiering of Service
The Customer Pyramid (Fig 3)
Good Relationship
Customers Which segment sees high value in
our offer, spends more with us over
time, costs less to maintain, and
Platinum
spreads positive word-of-mouth?

Gold
Which segment costs us time,
Iron effort, and money, yet does not
provide return we want? Which
segment is difficult to do
Lead business with?

Poor Relationship
Source: Valarie A Zeithaml, Roland T Rust, and Katharine N. Lemon, “The Customer Pyramid: Creating
Customers and Serving Profitable Customers,” California Management Review 43, no. 4, Summer 2001, pp.118–
142.

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 The Customer Satisfaction
Loyalty Relationship (Fig 4)
Apostle
100
Zone of Affection
Loyalty (Retention)

80

Zone of Indifference Near Apostle

60

40 Zone of Defection

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Terrorist 0
1 2 3 4 5
Very Dissatisfied Neither Satisfied Very
Dissatisfied Satisfied
Source: Adapted from Thomas O. Jones and W. Earl
Satisfaction
Sasser, Jr., “Why Satisfied Customers Defect,” Harvard
Business Review, November-December 1995, p. 91.

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2. Creating Loyalty Bonds

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Strategies for Developing Loyalty
Bonds with Customers (1)

 Deepening the relationship

 Bundling/cross-selling services makes switching a major effort
that customer is unwilling to undertake unless extremely
dissatisfied with service provider
 Customers benefit from consolidating their purchasing of various
services from the same provider

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Strategies for Developing Loyalty
Bonds with Customers (2)
 Reward-based Bonds
 Incentives that offer rewards based on frequency of purchase, value
of purchase, or combination of both
 Financial bonds
― Discounts on purchases, loyalty program rewards (e.g., frequent
flier miles), cash-back programs
 Non-financial rewards
― Priority to loyalty program members for waitlists and queues in call
centers: higher baggage allowances, priority upgrading, access to
airport lounges for frequent flyers
 Intangible rewards
― Special recognition and appreciation, tiered loyalty programs
 Reward-based loyalty programs are relatively easy to copy and
rarely provide a sustained competitive advantage

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Strategies for Developing Loyalty
Bonds with Customers (3)

 Social Bonds
 Based on personal relationships between providers and customers
 Harder to build and imitate and thus, better chance of retention in
the long term

 Customization Bonds
 Customized service for
loyal customers
― e.g., Starbucks
 Customers may find it
hard to adjust to another
service provider who
cannot customize service

Source: PAL Library; Asset ID: AAFHKTO0

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Strategies for Developing Loyalty
Bonds with Customers (4)

 Structural Bonds
 Mostly seen in B2B settings
 Stimulate loyalty through structural relationships between provider
and customer
― Joint investments in projects and sharing of information, processes
and equipment
 Can be seen in B2C environment too
― Airlines—SMS check-in, SMS e-mail alerts for flight arrival and
departure times
 Difficult for competition to draw customers away when they have
integrated their way of doing things with existing supplier

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3. Strategies for Reducing
Customer Defections

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Analyze Customer Defections and
Monitor Declining Accounts

 Understand reasons for customer switching

 Churn diagnostics common in mobile phone industry
 Analysis of data warehouse information on churned and declining
customers
 Exit interviews:
― Ask a short set of questions when customer cancels account;
in-depth interviews of former customers by third party agency
 Churn Alert Systems:
― Monitor activity in individual customer accounts to predict
impending customer switching
― Proactive detention efforts—send voucher, customer service
representative calls customer

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 What Drives Customers to Switch?
(Fig 5)
Service Failure/Recovery Value Proposition
Core Service Failure Pricing
• Service Mistakes • High Price
• Billing Errors • Price Increases
• Service Catastrophe • Unfair Pricing
Service • Deceptive Pricing
Service Encounter Failures
• Uncaring Switching Inconvenience
• Impolite • Location/Hours
• Unresponsive • Wait for Appointment
• Unknowledgeable • Wait for Service

Response to Service Failure

• Negative Response Competition
• No Response • Found Better Service
• Reluctant Response

Others
Involuntary Switching Ethical Problems
• Customer Moved • Cheat • Unsafe
• Provider Closed • Hard Sell • Conflict of Interest

Source: Adapted from Susan M. Keaveney, “Customer Switching Behavior in Service Industries: An Exploratory Study,” Journal of Marketing 59 (April 1995), pp. 71–82.
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Addressing Key Churn Drivers

 Delivery quality
 Minimize inconvenience and nonmonetary costs
 Fair and transparent pricing
 Industry specific drivers
 Cellular phone industry: Handset replacement a common reason
for subscribers discontinuing services—offer proactive handset
replacement programs

 Reactive measures
 Save teams: Specially trained call center staff to deal
with customers who want to cancel their accounts
 Be careful about how save teams are rewarded

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Other Ways to Reduce Churn

 Implement effective complaint handling and

service recovery procedures
 Increase switching costs
 Natural switching costs
― For example, changing primary bank account—many
related services tied to account
 Can be created by instituting contractual penalties for
switching
― Must be careful not to be perceived as holding customers
hostage
― High switching barriers and poor service quality likely to
generate negative attitudes and word of mouth

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Establishing non-monetary program and set
up goal micro and macro level

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Creating Customer Bonds by Membership
Relationships and Loyalty Programs (1)

 Transform discrete transactions into relationships

 Discrete transactions: Each usage involves payment to service
supplier by an essentially "anonymous" consumer
 Membership cards: Capture transactions, communicate customer
preferences to frontline
 Loyalty reward programs increasingly used by all businesses in
response to competition
― Frequent fliers program—rewards dominated in miles
 Customers may get frustrated with reward programs
― For example: Feel excluded from rewards program because of low
balances, rewards seen as having little value, cumbersome
redemption process
 Don’t lose sight of broader goals of offering high service quality,
nor allow service to other customers to deteriorate

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Create Customer Bonds by Membership
Relationships and Loyalty Programs (2)

 How customers perceive reward programs

 Brand loyalty versus deal loyalty
 Buyers value rewards according to:
― Cash value of redemption award
― Range of choice among rewards
― Aspirational value of rewards
― Amount of usage required to obtain award
― Psychological benefits of belonging to reward program
 Timing
― Send customers periodic updates on account status and
progress towards particular milestones

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How to measure cost-effectiveness and find
indicators to evaluate program

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Assessing the Value of a
Loyal Customer (1)

 Must not assume that loyal customers are always more

profitable than those making one-time transactions
 Costs
― Not all types of services incur heavy promotional
expenditures to attract a new customer
― Walk-in traffic more important at times

 Revenue
― Large customers may expect price discounts in return for
loyalty
― Revenues don’t necessarily increase with time for all types
of customers

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Assessing the Value of a
Loyal Customer (2)

 Profit impact of a customer varies according to stage of

service in product life cycle
 For example referrals and negative word-of-mouth have a
higher impact in early stages

 Tasks
 Determine costs and revenues for customers from different market
segments at different points in their customer lifecycles
 Predict future profitability

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Measuring Customer Equity:
Lifetime Value of Each Customer

 Acquisition revenues less costs

 Revenues (application fee + initial purchase)
 Costs (marketing + credit check + account set up)
 Projected annual revenues and costs
 Revenues (annual fee + sales + service fees + value of referrals)
 Costs (account management + cost of sales + write-offs)
 Value of referrals
 Percentage of customers influenced by other customers
 Other marketing activities that drew the firm to an individual’s
attention
 Net Present Value
 Sum anticipated annual values (future profits)
 Suitably discounted each year into the future

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Gap Between Actual and
Potential Customer Value

 What is current purchasing behavior of customers in

each target segment?
 What would be impact on sales and profits if they
exhibited ideal behavior profile of:
 (1) buying all services offered by the firm,
 (2) using these to the exclusion of any purchases from competitors,
 (3) paying full price?
 How long, on average, do customers remain with firm?
 What impact would it have if they remained customers
for life?

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Summary (1)

 Customer loyalty as an important driver of

profitability for firms so firms need to
 Assess value of loyal customer
 Narrow gap between actual and potential customer
value

 To understand the customer-firm relationship, firms

should establish a relationship with customers by
creating “membership” relationships

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Summary (2)

 Wheel of Loyalty shows how firms can:

 Build a foundation of loyalty
 Create loyalty bonds
 reduce churn drivers

 Building a foundation of loyalty involves:

 Good fit between customer needs and capabilities
 Searching for value, not just volume
 Tiering services effectively
 Obtaining customer satisfaction through service quality

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Summary (3)

 Customer loyalty bonds include:

 Reward-based bonds
 Social bonds
 Customization bonds
 Structural bonds
 Bonds can also be created through membership relationships
and loyalty programs
 Strategies for reducing customer defections include:
 Analyzing customer defections and monitoring declining accounts
 Addressing key churn drivers
 Implementing effective complaint-handling and service recovery
procedures
 Increasing switching costs

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References

 Philip Kotler and Kevin Lane Keller. “Marketing Management

13th Edition” Pearson Prentice Halls 2009.

 Christopher Lovelock and John Wirtz. “Service Marketing 6th

Edition” Pearson Prentice Halls 2007.

 Bernd Heinrich. “Transforming strategic goals of CRM into

process goals and activities” Business Process Management
Journal,Vol.11, No. 6, 2005, pp: 709-723

 John Gaffney. “Customer win-back strategies represent

revenue opportunity in tight market“ 2009

 อนุชิต เทีย่ งธรรม Marketeer ฉบับที่ 36 กมุ ภาพันธ์   2546

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 Questions & Answers
Question and Answer
THANK YOU