It is many times cheaper to retain a customer than to win one. As depicted in Exhibit 6.0, the longer customers stay the more they spend. And, as companies get to know them, they become more efficient in serving them. They benefit from economies of scale. Their revenue increases, costs decline and consequently profitability soars. Depending upon the industry, a 5% improvement in customer retention can increase profitability by 25% to 85%, in terms of net present value (Reichheld and Sasser, 1990).
On the other hand if customers are unhappy, they tend to go elsewhere. With attrition, revenue declines and cost per customer increases. As profits plummet, businesses are compelled to cut costs, often resorting to retrenching employees. That further de-motivates staff, plunging the company into a vicious downward spiral.
These business realities lead to Peter Drucker’s conclusion — “The only profit centre is the customer”. Retaining customers is not only a marketing prerogative, it is a survival strategy. Poor customer satisfaction eventually leads to bankruptcy and closure of business.
This chapter imparts an understanding of how to manage customer satisfaction. It covers a wide array of topics on the subject including the evolution of customer satisfaction, the interplay between employee satisfaction and customer satisfaction, customer loyalty, customer satisfaction measurement, transaction and relationship surveys, drivers of customer loyalty and satisfaction, and the Kano model.
The chapter also provides an overview of customer value management, i.e., the process of creating superior value for target customers and securing an equitable return on the value delivered. Concepts such as customers’ value-in-use and customers’ purchasing philosophy are reviewed here.