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Unit 4: Customer Retention, Acquisition and Expectation

proving it. Indeed, the majority of large American and Canadian firms today are experimenting Notes
with database marketing programs aimed, in large part, at retention. Most of these companies
are not yet sure whether their experiments will be successful. A significant number of the
programs will fail and ultimately be scrapped. How do such programs work? Let’s look at the
theory.
We like to go back to the old corner grocer. Prior to 1950, most groceries in the US and Canada
were sold in small grocery stores. The proprietor would meet them at the door. He knew them
by name. He knew their preferences. He would put things aside for them. He built his business
through recognizing his customers and doing favours for them. Customers were loyal to these
stores because of the recognition and personal attention they received. These small stores have
been virtually wiped out through the advent of supermarkets. Supermarkets have a much wider
variety of goods. The average grocery store had 800 Stock Keeping Units (SKUs) on their shelves.
Supermarkets today have 30,000 SKUs. Mass marketing took over. Prices came down. Variety
increased. Food purchases fell from 31% of the average family budget in 1950 to about 10%
today; yet the food we buy with that 10% is better in quality and quantity then to what we
bought with 31% in 1950. We have all gained.

4.1.3 Trends in Customer Retention

Retaining and developing customers has long been a critical success factor for businesses. In that
sense, Customer Relationship Management is not new, previously falling under the guise of
customer satisfaction. Worldwide, service organizations have been pioneers in developing
cause retention strategies.
1. Innovative Measures: Banks have relationship managers for select customers, airlines
have frequent flyer programs to reward loyal customers, credit card companies offer
redeemable bonus points for increased card usage, telecom service operators provide
customized services to their heavy users, and hotels have personalized services for their
regular guests. It is, however, with the rapid rise of new entrants into the market place and
increased competition that companies in other sectors have recognized the business
potential within a captured base.
2. Improved Operating Performance: Sluggish growth rates, intensifying competition and
technological developments businesses induced to reduce costs and improve their
effectiveness. Business process reengineering, automation and downsizing reduced the
manpower costs. Financial restructuring and efficient fund management reduced the
financial costs. Production and operation costs have been reduced trough Total Quality
Management (TQM), Just in Time (JIT) inventory, Flexible Manufacturing Systems (FMS)
and efficient Supply Chain Management (SCM).
3. Increased Focus: However, reduction in costs alone is no longer enough or is necessarily
an effective strategy. In facing the competitive threats, such as new entrants, pricing
pressures, technology along with the related costs and also including the time lags in
procuring, maintaining and strengthening one’s market, more and more organizations
are realizing that the traditional marketing model is no longer effective. With a flood of
new entrants offering quality products and services at lower prices, many sectors have
been turned into commodity markets. In a market place where loyalty has plummeted
and the cost of acquiring new customers is prohibitive, companies have turned to their
current customers in an attempt not only to retain them but also to exploit the potential
within. This has enabled them not only to respond to the threats in their market place but
also positioned them strategically to take advantage of the opportunities available.

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