STUDENTS' CORNER - 210

Customer Retention

Unsuccessful non-customer friendly strategies sooner or later will end the customer breaking out of your clutches

Customer Retention occupies a major place in the efforts of the business since customer retention in a way guarantees a constant cash flow to the company. Products manufactured or produced must get converted into cash through customer purchases and this conversion happens to be the life-line of any business concern.

All business men that is business houses know very well that annually some percentage of customers do exit the company and acquisition of new customers becomes an inevitable obligation for a company that means to stay. It is also well-known to them that acquisition costs much more to the company in terms of time and money than the regular present customers.  It becomes therefore a business strategy that the business must take all efforts to retain the customers.

The efforts towards the retention of the customer begins much early at the very time of annual budget for the company.  The budget has to take into consideration many facts that the market dynamics demands; among them, the major three items are Products, Sales and Customer Retention.  Many experts have contributed in detail towards budgeting for particularly customer retention. Very learned and of course very subtle articles on that subject have been published in all business magazines and noteworthy of them are Journal of Marketing and Harvard Business Review. Of course the articles saw the print as early as 2005 and some in 2007. Academics often prove more theoretical not much backed by practical business experience; no doubt, they have their own value of which we need not discuss here.

Let us focus on the efforts towards budgeting for Customer Retention. First of all, the company must know at least approximately the rate of exit of the customers from the company; what is called rate of defection.  Each business must evolve ways of arriving at an approximate defection rate because budgeting will be relevant and focused only if the defection rate is very nearly correct; otherwise,  less budgeting or more budgeting will be the results with their own consequences; less budgeting will tend to neglect the declining cash flow from the customers to the company and more budgeting will be less cost effective that is more money gets spent than necessary. For a journal, subscription is the significant factor; that is, the number of renewal of the subscription helps find out the defection rate; and, for an educational institution, the admissions in the courses offered and the students drop out when they move from the first year of study to the next year. They all clearly point to the kind of image, the brand image the journal or the college has in the minds of the stakeholders.

We will see some more of it in our next session.