Page 27 - DMGT408DMGT203_Marketing Management

Marketing Management/Essentials of Marketing

Notes 1. Acquiring new customers can be five times more expensive than the costs involved in
satisfying and retaining existing customers.
2. The average company loses 10 per cent of its customers each year.
3. A decrease of 5 per cent in the customer defection rate can increase profits by 25 per cent to
85 per cent, depending on the industry.
4. The customer profit rate tends to increase over the life of retained customer.
Jagdish N. Sheth and Atul Parvatiyar are also of the opinion that it is to a company's advantage
to develop long-term relationships with current customers because it is easier and costs less to
make an additional sale to an existing customer than to make a new sale to a new customer.

Example: Neighbourhood grocery shop owners frequently reassure their frequent
customers that if they are not satisfied with a consumable product, they can return it, even after
some use and get the full replacement. They practice relationship marketing based on
conventional marketing wisdom obtaining in India.

Task Discuss about any company which followed a practice of relationship
marketing for its growth.

According to Steve Schriver, research indicates that consumers are less loyal now than in the
past due to the following reasons:
1. The abundance of choice.
2. Availability of information.
3. Customers ask, "What have you done for me lately?"

4. Most products/services appear to be similar - nothing stands out.
5. Customers' financial problems reduce loyalty.
6. Time scarcity (not enough time to be loyal).
These forces lead to consumer defections, complaints, cynicism, decreased affiliation, greater
price sensitivity, and a tendency to carry on lawsuits.

Note Acquiring New Customers vs. Retaining Old Customers
The telecom paradigm is perceptibly changing. As the focus shifts from increasing the
customer base to growing the share of revenue, mobile phone service providers are
focusing on a model where customer retention becomes the key focus area.
In India, significant changes in the telecom scenario have influenced the strategy shift. To
start with, we had two operators in every circle. Now six or even seven operators compete
in the same service area. Then, telecom costs have been consistently sliding, leading to the
cheapest telecom rates in the world. All this has led to an explosion in subscriber numbers.
But they also increased customer churn.
Even acquisition costs per subscriber were going down (from between ` 5,000 and
` 10,000 in the late 1990s, it is now about ` 1,000 per customer). But break-even on new
Contd...

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