Moneycontrol PRO
you are here: HomeNewsBusiness

Know thy customers very well to retain them

Current customer retention models used by most SMEs and even big companies do not account for customers' changing considerations and dissatisfaction with the existing offerings.

June 22, 2022 / 03:40 PM IST
SMEs must understand and manage customers' past, present and future considerations in their planning and analysis.

SMEs must understand and manage customers' past, present and future considerations in their planning and analysis.

As customers, we all have had our likes, dislikes, disappointments and divorces with companies and brands over the years. When companies and many service providers talk of customer lifetime value (CLV), they seriously do not consider the numerous softer issues other than revenues and profits that cause the erosion of the so-called lifetime value.

How often have we all thought of quitting our current cellular service provider for the mental agony they cause with poor service, multiple-level IVR before actually getting to a customer service representative, billing puzzles or frequent call drops/slow data speeds? How often have you considered looking for a new dry cleaner because of the poor quality of service you get from the existing one? And what about the water purifier company that perennially delays servicing of your purifier?

They all seem to take us for granted. On our part, we are also too lazy to find a reliable new service provider or reluctant to go through the process of coordinating and other hassles with a new one. Yet, quit we all do at some point. The tipping point and timelines vary from individual to individual. And most of the time, the companies do not have a clue why customers drift away.

Knowing why customers leave or drop off from doing business with you is critical to managing a long-term sustainable and profitable business. Unfortunately, current customer retention models used by most SMEs and even big companies do not account for customers' changing considerations and dissatisfaction with the existing offerings. There is enough research evidence that this omission means that the models now in use are incorrect and insufficient, and more importantly, the strategic marketing decisions based on these models will be grossly sub-optimal.

Most customers are involved planners, forecasters and evaluators of services they seek. And, their expectations of their own behaviour are critical in the final decision to keep or drop a particular service. When the marketing folks or promoters of an SME understand that customers take future considerations into account while taking decisions about the company or its offerings, that information should influence all elements of the traditional marketing mix. SMEs that ignore this consideration will miss major opportunities to manage the customer relationship.

Close

In simpler terms, my esteemed colleague and services marketing guru Parsu Parasuraman of University of Miami had developed a framework for measuring the intangible elements of service in an objective way. The SERVQUAL model, developed by Parsu, Valerie and Berry, makes the intangible service much more tangible. For instance, the SERVQUAL model looks at five major pillars or dimensions of service quality in terms of physical premises and facilities, responsiveness, empathy, reliability and assurance. The scores aggregated from the instrument survey amongst customers provide a good direction as to where the enterprise should put its money in improving service quality. It identifies the most important issues for the customer. The framework measures the customer expectations and perceptions on all the five dimensions on a regular basis, and helps compare the same with the competition.

If an SME wants to retain its current customers, the expectations they have of future benefits from continuing to do business with the SME should be a primary focus. The SME marketing team must consider how such expectations can be managed for the better. In addition to customer satisfaction, SMEs should measure customers' expected future benefits (such as anticipated use and expected future changes) and customers' current levels of use. Marketing and acquisition strategy for both new and existing customers should consider how each marketing mix element (including changes in the service, marketing communications and pricing) might affect customers' current use and future use expectations. For instance, will a new service attribute such as 24X7 customer care encourage customers to use the service more (or expect to use the service more)? Marketing activities that either increase customer expectations of future use or increase actual use also should increase customer retention.

Moreover, whether customers expect to feel regret about the relationship at some point in the future or not (if, for instance, in the wake of a bad experience customers expect to stop buying your services) significantly impacts the decision to stay or quit. This leads to several exciting marketing opportunities.

muneer column smart growthI am sure all of us have experienced the regret of having responded to an advertisement, only to find that the person answering the call had not seen the ad nor had a briefing on what to do when a call would come in. Marketing teams may find it useful to integrate anticipated regret into marketing communications and other customer interactions. If indeed they can reach the customer before he or she has decided to discontinue doing business with them, the company may get a second chance to turn a dissatisfied customer into a satisfied one.

Every marketing plan that is intended to maintain existing customer relationships should consider how other aspects of strategy such as communications and content, new service attribute announcements and mobile app might "prime" anticipated regret amongst them.

As SMEs develop and manage relationships with their customers, they must understand and manage customers' past, present and future considerations in their planning and analysis.
M Muneer is the managing director of CustomerLab Solutions, a consulting firm.
first published: Jun 22, 2022 06:05 am
Sections
ISO 27001 - BSI Assurance Mark