Essay on CUSTOMER RETENTION STRATEGY AND CONTACT PLAN FOR ORANGE
Question 1. Discuss the importance of a retention strategy during the customer lifecycle.
For marketing products and services, it is important to study the stages of customer lifecycle and to interact with the customer accordingly at every stage. Managing customer relationships is especially important for services, since there is a greater element of interconnection between customers and service providers (compared to marketing products) (Sahaf 2008).
There are different approaches to analyzing and managing customer lifecycle, but the most common model of customer lifecycle in marketing is the one suggested by Matt Cutler and Jim Sterne (Chung 2012).
At the reach stage, the company focuses on attracting the attention of target customers. At the next stage, acquisition, the company works to engage its target customers and to bring them into own sphere of influence. Furthermore, at the conversion stage, those target customers who have established a relationship with the company make a purchase. At the retention stage, the company is attempting to keep the customer and to increase sales volume in different ways. Finally, at the loyalty stage the customer turns into a partner and advocates the brand in his or her environment.
Later on, this model of customer lifecycle was extended by the analysis of unsuccessful corporate attempts to attract customers at different stages of lifecycle. For example, failure at the acquisition stage leads to the abandonment of the product or service by customers. Failure to convert customers leads to attrition, and failure to retain customers causes high customer churn (Fig. 1).
In the modern marketing environment, there is a change of focus from traditional marketing based on transactions to the new approach of relationship-based marketing (Hoffman 2007). While transaction-based marketing focuses on individual sales, the growth of sales volume and market share, relationship-based marketing emphasizes the role of customer retention, growing the share of customers and increasing individual customer satisfaction (Hoffman 2007). The former approach is good for short-term perspective, but leads to higher price sensitivity among customers and is associated with high marketing costs. Indeed, the cost of attracting new customers and generating new sales is on average 6 or 7 times higher than the cost of generating repeat sales (Lovelock, Patterson & Wirtz 2014). Hence, relation-based marketing is therefore more cost-efficient; moreover, such approach helps to build brand loyalty and is more viable for the long-term perspective. In addition, such approach allows to avoid intensive price competition and to differentiate own products or services due to outstanding customer relationships. In particular, relationship-based marketing is highly efficient for services, since the role of interactions with customer is more important in the service sector (Reynolds & Lancaster 2007). Therefore, in order to differentiate its services among other competitors, Orange should adopt the relationship marketing approach instead of transaction-based marketing.
In the context of relation-based marketing, a particularly valuable element of the customer lifecycle is customer retention. Customer retention can be defined as “the number of customers doing business with the firm in the end of a financial year, expressed as a percentage of those who were active customers at the beginning of the year” (Buttle 2008, p.258). Instead of year, any other reporting period might be chosen, depending on the rate of repurchasing of the specific product or service. For example, in the case of Orange, customer retention might be reviewed every month, since the payments are mostly monthly.
Customer retention is an inverse of customer defection or churn – the higher is customer retention, the lower is customer churn. Depending on the type of the product or service, customer-related data that might be used for identifying customer retention might be located in product silos, channel silos or in functional silos (Ferrell & Hartline, 2012). In other words, customer information might relate to individual purchases, to group or channel purchases or to customer requests or queries instead of purchases (Piercy 2012). It is recommended to review different characteristics of customer retention: raw retention rate – the characteristic defined in the previous paragraph, sales-adjusted retention rate – sales volume generated by retained customers divided by the sales volume generated by all customers, and profit-adjusted retention rate – the relation of profit from retained customers to the overall profit (Piercy 2012).
There are numerous economic arguments illustrating the value of customer retention in customer lifecycle. First of all, retained customers tend to increase their purchases as tenure increases (Ferrell & Hartline, 2012). Indeed, as customer trust and brand loyalty grow, customers have lower uncertainty associated with the product and the probability of repeat purchases increases. Secondly, customer retention helps to reduce the costs of customer management over time, both for individual customers and for B2B segment (Hoffman & Bateson 2010). For most categories of customers, the costs of relationship maintenance are significantly lower than the costs of acquitting new customers. Furthermore, for large customers and B2B relationships, long-term partnership leads to automation of purchase processes and greater integration with customers. Such changes, in their turn, increase the chances of keeping such customers and turning them into brand advocates.
Thirdly, customer retention is beneficial for marketing purposes. Loyal and satisfied customers tend to advertise the brand in their environment, post positive reviews on the web, etc. For example, customers in electronics industry who made one purchase will refer the company to their friends with 25% probability, while customers who made ten purchases with the same company, are likely to refer the company to their friends with 77% probability (Hoffman & Bateson 2010). Therefore, customer retention creates advantages in terms of online, social and word-of-mouth marketing. Furthermore, loyal customers with high rate of satisfaction are more likely to pay premium prices for a particular product or service (Ellis 2012). For such customers, the value of a product or service is formed not only by the characteristics of the item purchased, but also by the relationships and trust in the company or the brand.
Therefore, it is possible to state that customer retention is a highly important stage of customer lifecycle with notable economic and marketing value for the company. The profits from retaining customers are notably higher than the profits associated with acquiring new customers. According to Buttle (2008), a 5% increase in customer retention rate leads to the growth of net present value of customers between 25% and 95%, depending on the industry. Customer retention increases customer lifetime value and improves the company’s financial viability.
Essay on CUSTOMER RETENTION STRATEGY AND CONTACT PLAN FOR ORANGE part 2
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