Customer RetentionBy 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. 1 wait for appointment) 3. which enables it to offer customized services which make it difficult for the customer to defect. if by a positive word of mouth. Further. They highlighted that companies can boost profits by almost 100% by retaining just 5% more of their customers. his value to the organization doubles. they will treat the customer accordingly and will focus on building relationship with the very people who keep them in business. they spread a positive word of mouth. Considering the importance of retaining customers in service business. 500 per month and stays with the company for 20 years.. Inconvenience (Wait for service. it is important for all the employees in the organization to understand the life time value of their customers. 1. he brings just one more customer to the organization. Further.000. deceptive pricing) 2. For example. it is also very important to understand the life time value of a customer. Reichheld & Sasser coined a term ‘Zero Defection’. 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.20. Service encounter failure (Uncaring. more the organization knows about him. Longer the customer stays with an organization. Once they understand it. impolite. his average lifetime value will be Rs. Therefore. Reasons for customer Switching The reasons for customer switching can be identified as following: 1. Pricing (High price. if an average customer of BSNL pays Rs. Billing errors) 4. unresponsive behavior) 2 .As they remain satisfied with a service provider. which is very effective in case of services for attracting new customers. Core service failure (Service mistakes. 500x 12x 20=Rs. unfair pricing. e) Accountability: Someone in the organization has to take responsibility for complaint handling. As a rule of thumb.5. Unsafe) 8. 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. f) Continuous Improvement: This is about looking at the root causes and fixing them. reluctant response) 6. d) Customer-focused approach: A service provider who adopts customer-focused approach. Ethical problem (Cheating. the less accessible it is to customers. A good complaint management system must ensure that that complainant is kept informed. the staff understands the complaint 3 . Involuntary switching (customer moved. Response to service failure (Negative response. the more formal the system for lodging complaints. b) Accessibility: Customer should know how to complain. c) Responsiveness: Complaints need to be dealt quickly. Competition (Found better service) 7. no response. the higher the customer satisfaction. invites complaints and indicates commitment of resolving complaints by its words and actions in all fairness. 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. The quicker the complaints are dealt with. Train and empower employees. 3.” 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. when a customer departs unhappily. While reducing waiting time is important for a marketer. If a customer’s perceived waiting time is less. Act fast.processes. The flight attendant not only did everything that was routine. Break customer silence and listen closely for complaints. (C) Managing Customer Waiting Sometimes. 2. it is not possible to match demand & capacity. complaints are taken seriously and employees are empowered to deal with situations. 5. 4. “An aircraft door was left open in a rainstorm before take off and a passenger near the door unfortunately got showered. he will be more satisfied with the service. it is equally if not more.but also made special gesture by offering the passenger a complimentary choice of certain tax free goods. The front line people must be trained and empowered by the organization. It should include the indirect cost also. Close the customer feedback loop. (B) Service Recovery Strategies Consider the following incident regarding an airlines (British Airways). Various ways of managing customer waiting are as follows: 4 . and hence waiting by customers becomes inevitable.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. Measure the costs of effective service recovery. important to reduce the customer’s perceived waiting time. Try to reduce pre-service waiting time by transferring some of the pre-service waiting to the service encounter phase. training and incentive/ rewards for providing good service should be made. If these customers are retained 5 . 3. more demanding. In case waiting cannot be avoided. The challenge is to produce delighted and loyal customers. Keep resources not serving customer out of sight. They are smarter. 6. 7. This helps in reducing uncertainty and customer irritation. information about the expected length of wait and/or ‘queuing information’ i. a reservation system can be used. less forgiving and they are approached by many more competitors with equal or better offers. a customer’s position in queue with continuous update. 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. Since unoccupied time feels longer than occupied time. TV sets. 4. magazines reading material can be provided in waiting area.1. Conclusion Today’s customers are becoming harder to please. explanation should be given to the customer. 2. The challenge is not to produce satisfied customers. For example.e. 5. A smiling service person who knows his job well can be very helpful in overcoming many negative effects of waiting. Provide ‘waiting duration information’ i. The key is to impress upon the customer that he has not been forgotten. more price conscious. Simple things like providing a glass of water or a cup of tea to the waiting customer can do wonders. if any. The organization should analyze its operational processes in order to identify and remove inefficiencies or bottlenecks. keep customer occupied by installing distractions that entertain and physically involve them. 8. If unexpected delays occur.e. several competitors can do this. Therefore. e. efficient complaint management system and service recovery strategies can be really helpful in retaining customers. Various strategies such as measuring customer life time value. high customer defection. they become really profitable by way of increase in purchasing. It is like adding water to a leaking bucket. reduced operating costs. 6 . price premiums and through referrals.with the organization. Too many companies suffer from customer churn i.