Context Makes A Difference

Contextual Conditions Impacting On Customer Retention

Graphics courtesy of feedierOpens in new window

Context makes a difference to customer retentionOpens in new window in two ways.

• First, there are some circumstances when customer acquisitionOpens in new window makes more, indeed the only, sense as a strategic goal.
• Second, customer retention strategies will vary according to the environment in which the company competes.

When launching a new product or opening up a new market a company’s focus has to be on customer acquisitionOpens in new window. In contexts where there are one-off purchases such as funerals, or infrequent purchases such as heart surgery, customer retentionOpens in new window is subordinate to acquisition.

The impact of contextual conditions on the choice and timing of customer retention practices has not been thoroughly researched. However, we can see that a number of contextual considerations impact on customer retention practices:

1.     Number of competitors.

In some industries, there is a notable lack of competitors, meaning that companies do not suffer badly from customer churnOpens in new window. This typically applies in state-provided services such as education and utilities such as gas, electricity, rail and telecoms, whether deregulated or not.

When customers are dissatisfied they have few or no competitors to turn to. Customers may also believe that the competitors in the market are not truly differentiated by their service standards. In other words, each supplier is as bad as the others. The result is inertia; customers do not churn.

2.    Corporate culture.

In corporate banking, the most short-term profit requirement of both management and shareholders has resulted in a lack of genuine commitment to relationship banking. Banks have been very opportunistic in their preference for transactional credit-based relationships with customers.

3.    Channel configuration.

Sellers may not have the opportunity to maintain direct relationships with the final buyers and users of their products. Instead, they may rely on their intermediaries. CaterpillarOpens in new window, for example, does not have a relationship with the contractors that use its equipment. Instead, it works in partnership with over 1,500 independent dealers around the world to provide customer service, training, field support and inventories of spare parts.

4.    Purchasing practices.

The purchasing procedures adopted by buyers can also make the practice of customer retentionOpens in new window futile. Customers do not always want relationships with their suppliers, as discussed hereOpens in new window.

5.    Ownership expectations.

The demands of business owners can subordinate customer retentionOpens in new window to other goals. For example, Korean office equipment manufacturers are very focused on sales volumes. They require their wholly owned overseas distributors to buy quotas of product from Korea, and sell them in the served market regardless of whether or not the products are well matched to local market conditions and customer requirements.

The distributors are put in a position of having to create demand against competitors that do a better job of understanding and meeting customer requirements.