Page 80 - DMGT308_CUSTOMER_RELATIONSHIP_MANAGEMENT

Unit 4: Customer Retention, Acquisition and Expectation

4.1.1 Negative and Positive Retention Strategies Notes

Negative customer retention strategies impose high switching costs on customers, discouraging
defection. In a B2C context, mortgage companies have commonly recruited new customers with
attractive discounted interest rates. When the honeymoon period is over, these customers may
want to switch to another provider, only to discover that they will be hit with early redemption
and exit penalties. Customers wishing to switch retail banks find that it is less simple than
anticipated: direct debits and standing orders have to be reorganized. In a B2B context, a customer
may have agreed a deal to purchase a given volume of raw material at a quoted price. Some way
through the contract a lower cost supplier makes a better offer. The customer wants to switch but
finds that there are penalty clauses in the contract. The new supplier is unwilling to buy the
customer out of the contract by paying the penalties.
Some customers find that these switching costs are so high that they remain customers although
unwillingly. The danger from CRM practitioners is that negative customer retention strategies
produced customers who feel trapped. They are likely to agitate to be freed from their obligations,
taking up much management time. Also, they may utter negative word-of-mouth. They are
unlikely to do further business with that supplier. Companies that pursue these strategies argue
that customers need to be aware of what they are buying and the contracts they sign. The Total
Cost of Ownership (TCO) of a mortgage can include early redemption costs.
When presented with a dissatisfied customer who is complaining about high relationship exit
costs, companies have a choice. They can either enforce the terms and conditions, or not. The
latter path is more attractive when the customer is strategically significant particularly if the
company can make an offer that matches that of the prospective new supplier.
In the following section we look at a number of positive customer retention strategies, including
meeting and exceeding customer expectations, finding ways to add value, creating social and
structural bonds, and building commitment.
4.1.2 Meet and Exceed Expectations

It is very difficult to build long-term relationships with customers if their needs and expectations
are not understood and well met. It is a fundamental precept of modern customer management
that companies should understand customers, then acquire and deploy resources to ensure their
satisfaction and retention. Customers that you are not positioned to serve may be better served
by your competitors.
Exceeding customer expectations means going beyond what would normally satisfy the customer.
This does not necessarily mean being world-class or best-in-class. It does mean being aware of
what it usually takes to satisfy the customer and what it might take to delight or pleasantly
surprise the customer. You cannot really strategize to delight the customer if you do not
understand the customer’s fundamental expectations. You may stumble onto attributes of your
performance that do delight the customer, but you cannot give consistent efforts to delight
customers to show your commitments to the relationship. Commitment builds trust. Trust
begets relationship longevity.

Customer delight occurs when the customer’s perception of their experience of doing business
with you exceeds their expectation. In formulaic terms:
Customer delight = P > E

Where P = perception and E = expectation.
This formula implies that customer delight can be influenced in two ways: by managing
expectations or by managing performance. In most commercial contexts customers expectations

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