Building Royalty and Prevent Defection

Building Loyalty
Five different levels of investment in customer relationship building are as follows:

(a) Basic marketing. The salesperson simply sells the product.

(b) Reactive marketing. The salesperson sells the product and encourages the customer to call if he or she has questions, comments, or complaints.

(c) Accountable marketing. The salesperson phones the customer to check whether the product is meeting expectations. The salesperson also asks the customer for any product or service improvement suggestions and any specific disappointments.

(d) Proactive marketing. The salesperson contacts the customer from time to time with suggestions about improved product uses or new products.

(e) Partnership marketing. The company works continuously with its large customers to help improve their performance.

(General Electric, for example, has stationed engineers at large utilities to help them produce
more power.)

Reducing Customer Defection
There are five main steps a company can take to reduce the defection rate.

(a) Define and measure its retention rate. For a magazine, the renewal rate is a good measure of retention. For a college, it could be the first- to second year retention rate, or the class graduation rate.

(b) Distinguish the causes of customer attrition and identify those that can be managed better.

(c) Estimate how much profit it loses when it loses customers. In the case of an individual customer, the lost profit is equal to the customer's lifetime value that is, the present value of the profit stream that the company would have realised if the customer had not defected prematurely through some of the calculations outlined above.

(d) Figure out how much it would cost to reduce the defection rate. As long as the cost is less than the lost profit, the company should spend the money.

(e) Listen to customers. Some companies have created an ongoing mechanism that keeps senior managers permanently plugged in to front-line customer feedback.