RETENTION AN EMINENT STRATEGY TO RETAIN CUSTOMERS IN THE MODERN COMPETITIVE ENVIRONMENT. TR.Kalai Lakshmi, Reseasrch Scholar, Sr.

Lecturer ,Sathyabama University, Chennai-119 Dr. SS Rau, Research Guide &, Registrar, Sathyabama University, Chennai-119 kalailakshmip@gmail.com ABSTRACT Key words: Retailing, Relationship marketing, Retention and Loyal Customers We have often heard it said that "It is five times more profitable to spend your marketing dollars to retain the customers that you have than to use the dollars to beat the bushes for new customers." This has become themarketing mantra for all the bsuiness organizations in todays marketing scenario..Do what you do so well that they will want to see it again and bring their friends,quotes the famous marketer-WALT DISNEY. In relation to this quote this paper tries to emphasize the need for retaining customers so that they become your loyal customers and also referrals for the organizations. Relationship Marketing refers to a long-term arrangement where both the buyer and seller have an interest in providing a more satisfying exchange Relationship Marketing are those marketing activities that are aimed at developing and managing trusting and long-term relationships with larger customers. In relationship marketing, customer profile, buying patterns, and history of contacts are maintained in a sales database, and an account executive is assigned to one or more major customers to fulfill their needs and maintain the relationship. Relationship marketing is important because if focuses on strengthening those elements of your marketing strategy which contribute to retaining existing customers. According to Liam Alvey, relationship marketing can be applied when there are competitive product alternatives for customers to choose from; and when there is an ongoing and periodic desire for the product or service.Customer Retention is the process of keeping customers in the customer inventory for an unending period by meeting the needs and exceeding the expectations of those customers. It can ve also atate as the process of converting a casual customer into a committed loyal customer and Customer retention rate refers to the number of customers lost over a period of time. It is

normally calculated by the percentage of lost customers versus existing customers over a quarterly or annual period, without tallying new customer acquisitions. Jay Curry and Adam Curry (2000) in their publication Customer Marketing Method state that: Top 20% of the custo,ers deliver 80% of the revenue. Existing customers contributes upto 90% of the revenue Top 20% of the customers deliver more than 1100% of profits The bulk of marketing benefit is often spent on the people other than customers. Between 5% and 30% of all the customers have the potential for moving upward the loyalty ladder. 2% upward migration in the loyalty ladder means 10% more revenue and 50% more profits. Organizational value from a retention strategy is, in most cases, significantly more effective and profitable for the firm than a focus on acquiring customers.This approach attempts to transcend the simple purchase-exchange process with a customer to make more meaningful and richer contact by providing a more holistic, personalized purchase, and uses the experience to create stronger ties.A key principle of relationship marketing is the retention of customers through varying means and practices to ensure repeated trade from preexisting customers by satisfying requirements above those of competing companies through a mutually beneficial relationship. This technique is now used as a means of counterbalancing new customers and opportunities with current and existing customers as a means of maximizing profit and counteracting the "leaky bucket theory of business" in which new customers gained in older direct marketing oriented businesses were at the expense of or coincided with the loss of older customers. This process of "churning" is less economically viable than retaining all or the majority of customers using both direct and relationship management as lead generation via new customers requires more investment. Many companies in competing markets will redirect or allocate large amounts of resources or attention towards customer retention as in markets with increasing competition it may cost 5 times more to attract new customers than it would to retain current customers, as direct or "offensive" marketing requires much more extensive resources to cause defection from competitors. However,
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it is suggested that because of the extensive classic marketing theories center on means of attracting customers and creating transactions rather than maintaining them, the majority usage of direct marketing used in the past is now gradually being used more alongside relationship marketing as its importance becomes more recognizable. It is claimed by Reichheld and Sasser that a 5% improvement in customer retention can cause an increase in profitability of between 25 and 85 percent (in terms of net present value) depending on the industry. However Carrol, P. and Reichheld, F dispute these calculations, claiming they result from faulty cross-sectional analysis. Research by John Fleming and Jim Asplund indicates that engaged customers generate 1.7 times more revenue than normal customers, while having engaged employees and engaged customers returns a revenue gain of 3.4 times the norm. The economics of customer retention is obvious according to Frederick Reichheld of Bain & Company, and author of The Loyalty Effect, customer spending tends to accelerate over time; longer-term customers are more efficient users of the products and services they buy and have lower operational costs; long-term satisfied customers provide more referrals; and longer-term customers are less price-sensitive than newer customers. The end result is that the overall value of a customer increases the longer that customer remains a customer. Bain & Companys research in a variety of industries suggests that a mere 5% increase in a companys customer retention rates will increase the average lifetime profits per customer. The members of the Performance Improvement Council, a unit of the Incentive Marketing Association state that it is important for an organsation that he remembers the statement. Dont forget to communicate. Whatever your choice of program, dont forget thatcommunication is one of the keys to a successful customer retention program, and communication is a two-way street. You are advertising and marketing to external customers, who in turn communicate with the internal employees they encounter on a day-today basis. The feedback customers give to employees about your program may be one of the most overlooked areas of business intelligence in helping organizations better understand what they can do to please customers and promote retention over the long-term.

According to Buchanan and Gilles,the increased profitability associated with customer retention efforts occurs because of several factors that occur once a relationship has been established with a customer.

The cost of acquisition occurs only at the beginning of a relationship, so the longer the Account maintenance costs decline as a percentage of total costs (or as a percentage of Long-term customers tend to be less inclined to switch, and also tend to be less price Long-term customers may initiate free word of mouth promotions and referrals. Long-term customers are more likely to purchase ancillary products and high margin Customers that stay with you tend to be satisfied with the relationship and are less likely to

relationship, the lower the amortized cost.

revenue).

sensitive. This can result in stable unit sales volume and increases in dollar-sales volume.

supplemental products.

switch to competitors, making it difficult for competitors to enter the market or gain market share.

Regular customers tend to be less expensive to service because they are familiar with the Increased customer retention and loyalty makes the employees' jobs easier and more

process, require less "education", and are consistent in their order placement.

satisfying. In turn, happy employees feed back into better customer satisfaction in a virtuous circle. Sir John Cohen and Peter Clark state that supermarkets can be divided into three groups based on their strategies to retain their customers as supermarkets who that rely on every-day low prices (EDLP) to keep their customers, rely on loyalty programmes for best customer marketing;and those rely on excellent service and ranges of products and Of course, there are many shades in this spectrum and some supermarket chains adopt all three methods to varying degrees. Hence there are no definitely 'right' or 'wrong' approaches to customer retention. EDLP will appeal to one group of consumers, better service and choice will appeal to another, and loyalty programmes will appeal to another. Arthur Middleton Hughes in his article Customer Retention: Integrating Lifetime Value into Marketing Strategies had explored the meaning of a retention strategy, showing how it can
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be set up, and how lifetime value can be used to measure it. He says that database marketing only works to build retention if the customer benefits from the retention strategies. He has also explored on the various retentional strategies that could be adoted by the organkisations to retain customers through his study. Conclusion: Retention of customer plays an eminent role in retaining the customers in organsations. Lifetime value analysis provides a basis on the retetion rate and its advantage to organisations.It also helps to increase profits, reduce churn, and increase frequency, spend, and share of wallet. Hence It can be conlcuded that organisations should adopt strategies to retain exsisting customers to strenghten their business operations.
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Leonard (1983). Relationship Marketing. American Marketing Association, H Peeru Mohamed & A Sagadevan (2002) Vikas Publishing House Pvt Ltd., India. ^
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Chicago. p. 146. ISBN 0877571619. 2.

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Gale, B.T.,Chapman., R.W. (1994) Managing Customer Value: Creating

Quality and Service That Customers Can See New York: Free Press
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^ Gordon, Ian (1999). Relationship Marketing: New Strategies, Techniques and

Technologies to Win the Customers You Want and Keep Them Forever. John Wiley and Sons Publishers. p. 336. ISBN 0471641731.
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^ Kotler, Philip, Armstrong, Gary, Saunders, John and Wong, Veronica. (1999). ^ Kotler, Philip, Armstrong, Gary, Saunders, John and Wong, Veronica. (1999)., ^
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"Principles of Marketing" 2nd ed. Prentice Hall Europe.

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p482
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Kotler, Philip, Armstrong, Gary, Saunders, John and Wong, Veronica.

(1999)., p483
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^ Reichheld, F. and Sasser, W. (1990) "Zero defects: quality comes to services", ^ Carrol, P. and Reichheld, F. (1992) "The fallacy of customer retention", Journal The Loyalty Guide www.theloyaltyguide.com)

Harvard Business Review, Sept-Oct, 1990, pp 105-111

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of Retail Banking, vol 13, no 4, 1992

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Published by The Wise Marketer in July 2006

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Arthur.hughes@dbmarketing.com)