Why Customer Retention Is So Important

Good customer retention is vital to any organization because a slight reduction (5%) in the customer defection rate has a disproportionately positive effect on profitability (depending on the cost of acquisition, ranging between 25 and 80%!). Companies with high retention also grow faster. However, customers can only be retained if they are loyal and motivated to resist competition. When customers are merely satisfied with the service they receive they may still “walk”. Your customer retention management relies on the combination of the following:


  • High satisfaction with product performance and customer service.
  • High intention to continue to do business with you.
  • High willingness to recommend you to others.
  • There are two components of customer retention. Both need to be pursued. Customer satisfaction. Systematic and proactive customer relationship management.


Customer Satisfaction

For customer satisfaction to be high, promises and expectations must be met. This involves the organization’s ability to understand customer expectations and to do it right the first time (DIRTF). The ability to deal with problems as they arise is a key ingredient to success. Also, the organization needs to consider complaints as a gift! Why?

  • Customers who have an issue dealt with to their satisfaction have a 95% likelihood of repurchasing and telling 5 people about their experience; if they don’t complain (as 96% of people do) they will tell at least 10 other people about their problem.
  • The occurrence of problems can cause a 15-to-30-point drop in high-satisfaction responses and in loyalty indicators. This puts revenue at risk to the average tune of 11%.

So, some techniques to maintain and improve satisfaction must be considered. An effective complaint handling system is an excellent defensive tool. Ongoing surveys to measure customer satisfaction and loyalty, and capture the voice of the customer are also essential.

The biggest problem, however, is that companies do not manage the customer contact experience with sufficient detail.

Steps on the way to B2B Customer Retention

  • Service irritants are out of the way
  • Service expectations are met and exceeded
  • Consistency and continuity in relationship manager performance
  • Real-time and complete information available
  • Flexibility to provide customization opportunities
  • Genuine sense of trust and interest in mutually advancing profitable business
  • “WOW” – Loyalty

Amit Nayak
ITESGrads India

September 2003

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