The Hindu Business Line : Criteria for customer retention

Selling is moving away from a marketing activity into a consulting assignment. Sales people operate increasingly as problem-solvers, not simply as product vendors. They are assessed as much by how well they understand and serve the needs of the customer as for their product knowledge. The major criterion determining market leadership in the current commercial scenario is the strength and intensity of the relationship that a company enjoys with its customers.

Customer retention does not depend on achieving some quality certification or furnishing a warranty for the product. It depends more on providing a customer with some tangible benefits and satisfaction. For instance, an over-emphasis on speed of delivery — at the cost of some other virtue — is unlikely to reinforce the retention factor. In the initial stages of the relationship handholding of the customer will pay better dividends than answering the phone within three rings.

The pyramidal hierarchy of the old and orthodox system, in which only the most persistent customer with an elephantine tenacity had the stamina to scale corporate heights to register a grievance, needs to be changed. More horizontal structures will help to reduce fragmentation and they will increase synergy.

However, synergy per se will not transform organisations; symbiosis is also necessary. Both partners must be aware of their interdependence, while they are also comfortable about that equation. Both must bring to that relationship complementary needs and the capacity to satisfy those needs reciprocally. Both partners must possess a genuine interest and respect for the satisfaction of the needs of the other.

This state of achieving mutual respect and advantage will be a cardinal feature in the new formations of management, like the self-managing teams. Customer retention being one of the prime criteria for ensuring excellent corporate performance, all teams will be customer-driven. Customers will be perceived bi-focally and treated as partners in the business.

In addition to all these, new core competencies will be needed to retain customers. Evangelising is an important strategy in this connection. It is the competence to communicate with customers in ways that motivate them and reinforce their loyalty to the company. Opportunity-mapping is another vital competency that covers the processes to identify opportunities for increasing customer retention and taking swift action to capitalise on them for gaining competitive advantage. The procedure to stimulate and influence customer commitment by managing their expectation threshold is another equally significant competency.

Companies looking to retain customers need to rethink how they will provide not just satisfaction but create value-addition. There are two dimensions to customer retention: economic and psychological. While economic factors will continue to dominate retention strategies, their success will depend more and more on the efficacy and effectiveness with which the psychological dimensions are managed.

When a customer is comfortable in dealing with a particular company, it is difficult for a competitor to make a dent in that relationship. A sense of exclusivity and prerogative like the “preferred customer” policy, or even more mundane motives like convenience and inertia, can turn out to be strong magnets in retaining customers. Prior experience such as consistent quality of the product, and prompt redressal of grievances, will invariably strengthen the psychological bonds of a customer.

It is necessary to focus on the factor of cost management to succeed in customer retention. If the costs exceed the margins flowing from a particular sale, then that transaction is not worthwhile. A major component of the costs is working capital. It consists of inventories and receivables. As customer retention enables producers with a more reliable database for forecasting demand, this facilitates the implementation of demand-based management. The concept of Just-In-Time inventories, an extension of demand-based management, reduces the time interval between manufacture and delivery. Such a speeding up of the velocity of production reduces both the level of stocks and accelerates the receipt of payments.

The attitude of a loyal and long-standing customer towards any fault in the product, or any lapse in service is always more positive and supportive of the producer, compared to a first-time customer. The new customer is more likely to over-react to product deficiency and seek more punitive retribution than a long-standing customer who may set off one negative incident against the previous track record of several plus points that he has earlier experienced. By and large, therefore, customer retention leads to better business.

(The writer, a former HR director of a well-known auto components group, is a management consultant.)

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