Business is About Attracting and Retaining Customers

Everyone in business has been told that success is all about attracting and retaining customers. It sounds reassuring, simple and achievable. But in reality, words of wisdom are soon forgotten. Once companies have attracted customers they often overlook the second half of the equation. In the excitement of beating off the competition, negotiating price, securing orders, and delivering the product, managers tend to become carried away. They forget what they regard as the humdrum side of business - ensuring that the customer remains a customer.

Failing to concentrate on retaining as well as attracting customers, costs business huge amounts of money annually. It has been estimated that the average company loses between 10 and 30 percent of its customers every year. In constantly changing markets, this is not surprising. What is surprising is the fact that few companies actually realize of how many customers they have lost.

Now organizations begin to wake up to these lost opportunities and calculate the financial implications. Cutting down the number of customers a company loses can make radical difference in its performance. Research in the US found that a five percent decrease in the number of defecting customers led to profit increase of between 24 and 85 percent.

Rank Xerox takes the question of retaining customers so seriously that it forms a key part of the company's bonus scheme. In the US, Domino's Pizzas estimates that a regular customer is worth than $ 5,000 over ten years. A customer, who receives a poor quality product or service on their first visit and as a result never returns, is losing the company thousands of dollars in potential revenue (more if you consider how many people they are liable to tell about their bad experience).

The logic behind nurturing customer loyalty is impossible to refute. "In practice most companies marketing effort is focused on getting customers, with little attention paid to keeping them", says Adrian Payne of Cornfield University's School of Management and author of the Essence of Service Marketing. Research suggests that there is a high degree of correlation between customer retention and profitability. Established customers tend to buy more, are predictable and usually cost less to service than new customers. Furthermore, they tend to be less price sensitive, and may provide free word-of-mouth advertising and referrals. Retaining customers also makes it difficult for competitors to enter a market or increase their share of market.

Payne points to a ladder of customer loyalty. On the first rung, there is a prospect. They are then turn into customer, then a client, then a supporter and finally, if the relationship is successful, into an advocate persuading others to become customers. Developing customers so they travel up the ladder demands thought, long-term commitment and investment.