Customer Retention alongside Customer Acquisition
Customer Retention refers to the retaining of the existing customer or product in the current business for a long period of time. When the company’s sales are good, it aims at maintaining the sales. High customer retention ensures that the customer comes back to purchase the product from your business. The business attempts to reduce the customer defections i.e. losing customers. The customer retention is a gradual process which starts when the customer first comes into contact with the business and it goes on throughout the life cycle of the business.
Retaining a customer in the business takes much more than just providing the basic services. It needs to create customer loyalty with the brand. They focus more on creating customer value rather than earning profits. In order to achieve this target, the company has to provide high-end customer service to maintain the customer satisfaction.
What drives customer retention?
- Customer Satisfaction: The customer satisfaction plays a major role in retaining the customer. Once he is satisfied with the services provided by the company, he will come back for the same. The customer’s desire to consume a product is governed by the satisfaction it derives from it. Thus, higher the satisfaction, higher will be the retention.
- Customer Relationship Management: A good customer relationship management is a great influencer of the customer retention. Customer relationship management is the process of analyzing the customer interactions and data so as to build a stronger relationship with the customers and potential customers. This creates a sense of belongingness among the customers in relation to the company.
- Customer Delight: The customer delight refers to the customer taste and preferences. The business which succeeds in fulfilling the requirement of the customer and meet their taste demands is more likely to retain the customer in the business.
- Customer Switching Costs: Customer Switching Costs refers to the cost incurred by the customer while switching from one product or company to another. If the switching cost is higher than the benefits, the customer will stay with the present business or it will change.
Why achieve Customer Retention?
- Increasing Profits: The customer retention helps in maintaining the customer base and boosting the sales. The boosting of sales help in the increase of revenue for the business and ultimately increases the profits for the business. The business maintaining the loyalty of customers is preferred over and above other companies. Increasing profits is not the primary goal; focusing on value creation is.
- Lower Cost of Marketing: Once the business builds up a reliable customer base, it does not need to spend much on marketing. It can go on with normal ad campaigns and target the new customers only. This saves a lot of cost to the business from marketing; which can now be spent on the other primary areas.
- Good Reputation in the market: A good customer base means the business is serving its customers well and is able to create value for them. This gives the company a good image in the market and attracts new customers. This not only attracts new customers but new investors as well who are willing to invest in the company.
How to increase Customer Retention?
In order to retain customers, the business needs to take a number of steps. Some of the steps that the business can take to retain the customers are:
- Providing special offers: The businesses generally provide discounts to the existing customers through coupons or special invitations. These special offers help them in staying acquainted with the business. This will help to retain the customers for a long time in the business. The companies should keep providing the customers with these special offers and should take care of their tastes and preferences as well.
- Improving the follow up after sales: The selling process does not end up with making the sales to the customers. Once the sales are made, it is the duty of the company to follow up with the customers regarding any discrepancy or query or complaint. The customer care services must be provided appropriately. This establishes a better relationship between the customer and the company and helps in the better retention of the customer.
- Fixing Schedule with the customers: The Company’s representatives should meet up with the existing and prospective customers in the business. They must keep proper records of the customers and fix appointments with them on a timely basis.
- Improving customer relations: The customer relationship management is the most important aspect of implementing customer retention in the business. A good customer relationship management is a great influencer of the customer retention. It should be improved over a period of time. The employees must take care of the customer’s tastes and preferences.
- Retaining VIP customers: Every business has a list of VIP customers. These are those customers which hold a major share of the business’s products i.e. is the main customers of the business. They account for the major sales and are valuable to the business. It is necessary for the business to retain such customers as they bring in the major part of the revenue.
- Providing rewards to customers: Providing rewards to the customers is same as providing them with the special offers. It includes monetary rewards and draws as well. There should be lucky draws for the customers upon the purchase of the products. This attracts the customers a lot and plays a major role in maintaining them in the business.
Customer Acquisition refers to the process of obtaining or acquiring or bringing a new customer into the business. It may be changed in the existing prospects into new customers. Acquiring new customer involves a lot of persuading so that they can buy the company’s products. Acquiring a new consumer involves a large amount of cost. Thus care should be taken that the cost of acquisition is less than the value brought in by the consumer.
The process of Customer Acquisition:
It is necessary to put the process of customer acquisition in action with utmost care and in a sequence. The process is as follows:
- Deciding the target customer: Before creating a policy, it is important for the business to analyze the market and decide the customer group it wants to acquire. It is important to determine the target customer beforehand. This gives the business or planners an insight into what is to be done and how it is to be done. The target customer helps in providing the base for the further research.
- Analysis of the customer’s psychology and surrounding environment: Once the customer groups are decided, it is important to analyze the customer background, their psychologies and the surrounding environment they exist in. The customer’s psychology i.e. their tastes and preferences; the surrounding environment i.e. customer groups, needs, demand and supply etc.; these help in determining the customer the business want to deal with. It is important to analyze the environment so as to decide the tools required for the process.
- Creating a strategy: Once all the factors are analyzed and studied, it is the time for the business to work out on the strategy that will help in the achievement of the goals. While making a strategy the expert opinion must be taken. The strategy shall be planned in such a way that it is able to achieve the goals of the organization. The strategy making is a comprehensive process and should involve the employees and line managers as well.
- Hiring right staff: After strategizing the whole process, the need is to hire the right people who will perform the job for the business. These are the people who will execute the process of acquiring the new customers. They must be having specialized skills and required expertise in their fields. They must be able to communicate with the customers effectively and hire them into the business.
- Evaluate Acquisition Costs: The next step is to evaluate the costs of acquiring the new customers. A proper record of the costs must be maintained. It should be taken care that the costs must not exceed the revenue estimated to be earned from such acquisition. It will render the whole process as a waste.
- Implement the strategy and create product demand: Once all the prerequisites are taken care of, it is the time to implement the strategy. The strategy should be implemented at every level of the organization and proper standards for measuring the performance should be established. These standards must be used to evaluate the performance and find the differences between the planned and actual performance. Afterward proper measures should be taken to cover up these gaps. Proper control should be maintained.
The Benefits of Customer Acquisition
Once the customer acquisition is applied in the business efficiently, it can prove to be very beneficial for the company. Following are a few areas where the customer acquisition can turn out to be beneficial for the business:
- The building of Brand Image: The customer acquisition helps in the expansion of the business. The larger the customer base, customer loyalty and retention, the larger will be the brand image in the market. The customers get attracted towards the brand image and rely on it hugely. Thus, it is preferable for the business to maintain the customer acquisition.
- Opportunity to try new ventures: Once the business has acquired customers, it has an opportunity to expand its working areas. They can invest in other product lines easily due to the presence of the large customer base and the brand image created. It is generally easy to introduce new products in an existing brand rather than creating a new one. This will open up many opportunities for the business to invest in new ventures.
- Substitute for Marketing Strategy: It is just like another marketing strategy for the business which involves attracting the new customer. If it is taken into consideration, the marketing strategy is no longer needed as it serves both the purposes.
- Better results than Retention: Customer acquisition if done in the right manner and cost-effective way, can yield high profits. It can result in higher returns as compared to the Customer Retention. After a while customer retention ceases to increase the returns. It is then that the customer acquisition comes into play.
Customer Acquisition V/S Customer Retention
It is a debatable topic as to what is more beneficial for the company; customer acquisition or Customer retention. The explanation of this debate can be understood as follows:
- Sometimes the businesses are not able to exploit the customer base fully. In that case, they need to retain the customers in the business. They must take care of the customers already associated with the business. Once it is done, it is important for the business to acquire new customers as well. They both should be conducted simultaneously.
- Customer retention is a cost-efficient process and is targeted at maintaining the sales or economy of the business. It is targeted to create customer loyalty and run the business smoothly. Whereas Customer Acquisition is a competitive strategy.
- The customer is changing demands very frequently and they tend to move from one seller to another. Therefore it is important for the business to retain customers in the business along with acquiring new customers.
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