Value and Retention

Value: In business sector, it is necessary to focus on customer

satisfaction and trustworthiness to maintain prosperity. Company can

maximize customer satisfaction by delivering valuable products to

customers so that they keep on buying more of the products and

services that fulfill their needs. Customer value means customer's

evaluation of the difference between all the benefits and all the cost of

products. Customer value is described as the ratio between

customers's perceived benefits (economic, functional and

psychological) and the resources such as monetary, time efforts used

to obtain those benefits. Perceived value is relative and subjective

(Schiffman, 2007). Woodruff proposes that "Customer value is a

customer's perceived preference for evaluation of those product

attributes, attribute performances, and consequences arising from use

that facilitate (or block)achieving the customer's goals and purposes in

use situations"(1997).

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To create Customer Value, it is helpful to use the value chain proposed

by Micheal Porter. The value chain consists of company actions that

create value and add costs in an organization. The prime activities in

the value chain are:

 Bringing materials into the company (inbound logistics)

 Converting materials into finished products (operations)

 Shipping out finished products (outbound logistics)

 Marketing the products (sales and other marketing activities)

 Servicing the products (customer service)

Primary activities include secondary support activities such as

procurement (or purchasing), technology development, human

resource management and firm infrastructure. These support activities

may be managed by particular departments or by multiple

departments.

Academic literature revealed that high customer loyalty can be

generated through delivering high customer value. A company must

devise a competitively superior value proposal aimed at a specific

market segment (Michael Lanning).

In a highly competitive market, a company can survive by creating and

delivering superior values. This involves 5 capabilities:

 Understanding customer value

  Creating customer value

 Delivering customer value

 Capturing customer value

 Sustaining customer value

To perform customer value analysis, company must recognize major

attributes and benefits that customers value, assess the qualitative

importance of different attributes and benefits, evaluates company's

and competitor's performance on different customer values against

rated importance, investigated ratings of specific segments and

monitor customers values over time.

Dimensions of customer values: These dimensions include:

 Conformance to requirements

 Product selection

 Price and brands

 Value added services

 Relationships and experiences

Determinants of Customer Value:

Retention:

Many companies loose customers due to feeble marketing strategies. It

is maintained in literature that through maximizing customer

satisfaction, companies can retain customers for longer period and

these customers continue to make contribution to profits. The main

objective of giving value to clients continuously and more effectively

that competition is to retain satisfied customers. This strategy of

customer retention makes it in the best interest of customers to stay

with the company instead of moving to other firms.

The importance of customer retention: It has been observed that

companies put more efforts on attracting new customers and far less

attention in retaining customers. Satisfied customers are loyal

customers. Studies have demonstrated that small reduction in

customer defections produce considerable increase in profit because

loyal customers buy more products, they are less price sensitive and

do not easily impressed with competitors' advertisements. Loyal

customers spread positive word of mouth and refer to other customers.

Additionally, it is established that attracting new customers through

marketing efforts is expensive.

Marketers who designate increasing customer retention rates as a

strategic corporate goal must recognize that all customers are not

equal. Modern marketers develop selective relationship with customers

based on ranking of customers in terms of profitability instead of

retaining them. In customer retention strategy, company closely

monitorswith its customer consumption pattern, established tiers of

customers according to their profitability level and develop effective

strategies toward each group of customers. Aspinall et al. (2001)

stated that 54 per cent of companies visualized that customer

retention was more significant than customer acquisition. Marketing

literature emphasized the advantages for retaining customers (Ahmad

and Buttle, 2002). The benefits of retaining customers to the

organization are higher margins and faster growth, derived from the

notion that the longer a customer stays with an organization, generally

the higher the revenue.Dawes and Swailes (1999) enlighten that

unbeaten customer retention lessen the costs of searching new and

potentially risky customers, and allows organizations to focus more

precisely on the requirements of their existing clientele by building

relationships (Pp:36). Researchers have also designated that customer

retention has an important impact on profitability and positive

customer satisfaction and leads to better financial performance.

In order to categorize customers according to profitability level goes

beyond traditional segmentation marketing methods which classify

customers on the basis of demographic, sociocultural or behavior

characteristics. Consumer profitability focused marketing follows cost

and revenue on individual customers and then categorize into tiers

based on the consumption behavior that are specific to company's

offerings. These strategies are useful to gain knowledge about

customer behavior (Schiffman, 2007).

Traditional marketing concept verses value and retention

focused marketing (Source: Schiffman, 2007).

The traditional marketing Value and retention focus

concept marketing

Make only what you can sell Use technology that enables

instead of trying to sell what you customers to customize what you

make make

Do not focus on the product. Focus on the product’s perceived

Focus on the need that it value as well as the need that it

satisfies. satisfies

Market products and services Utilize an understanding of

that match customers’ needs customer need to develop

better that competitors offerings that customer perceives

offerings. as more valuable that

competitors offerings.

Research consumer needs and Research the level of profit

characteristics associated with various consumer

needs and characteristics.

Understand the purchase Under consumer behaviour in

behaviour process and the relation to the company’s product

influence on consumer
behaviour

Realize that each customer Make each customer transaction

transaction is a discrete sale. part of an ongoing relationship

with customer.

Segment the market based on Use hybrid segmentations that

customer’s geographical, combines the traditional

demographic, psychological, segmentation bases with data on

sociocultural life style and customers purchase level and

product related characteristics. patterns of use of the company

product.

Target large group of customers Invest in technology that enable

that share common you to send one to one

characteristics with message promotional messages via digital

transmitted through mass channels.

media.

Use one way promotion whose Use interactive communication in

effectiveness is measured which message to customers are

through sales data and tailored according to their

marketing surveys. response to previous

communications.

Create loyalty program based on Create customer’s tiers based on

various purchases. both volume and consumption

patterns.

Encourage customers to stay Make it very unattractive for your

with the company and buy customers to switch to

more. competitors and encourage them

to purchase better in manner that

will raise company’s profitability

level.

Determine marketing budget on Base your marketing budget on

the basis of the number of the lifetime value of typical

customers you are trying to customers on each of the

reach. targeted segments compared

with the resources needed to

acquire them as customers.

Conduct customer satisfaction Conduct customer satisfaction

survey and present the results survey that include a component

to management. that studies the word of mouth

about the company and use the

results immediately to enhance

customer relationships.

Create customer trust and Create customer intimacy and

loyalty to the company and high bonds with completely satisfied

level of customer satisfaction. and delighted customers.

To establish effectual strategy for customer retention requires careful

planning and should include comprehensive plans and methods for

customer identification and registration, segmentation and reward

design. In order to be a source of sustainable competitive advantage,

organization develop the strategy that must always take into account

what is its loyal customers value, since loyalty and retention is

inextricably associated to the formation of value (Morgan et al, 2000).

To summarize, it can be maintained that understanding customer

value can result in successful marketing if company targets those

customers with the highest potential value, not just those with the

highest actual value. Customer retention is vital in any business that

hopes to flourish in a highly competitive and flooded business market.

A business philosophy focused on customer value, satisfaction and

retention evolves from marketing concepts and opens up new

dimensions of marketing.