Chapter 7

Customer Loyalty &

Retention Management
 Analysis of Customers
1. Better solutions – customer is loyal to a particular brand
on the basis of total attributes or services provided by
the company. Park avenue.
2. Improvement – a company needs to focus on the area
that needs improvement in terms of product or service
and maintain consistency in areas which are rated high
by the customer. Eureka Feedback

3. Looking for opportunities – try to work on the results

arrived from the survey. Moti soap
4. Allocating resources better – by shifting resources for
building various attributes.
 1. BETTER 3. LOOKING FOR
Dissatisfied customers SOLUTIONS OPPORTUNITIES

2. IMPROVEMENT 4. ALLOCATING
RESOURCES
BETTER

Satisfied Customers

Attributes what customer care for Attributes what consumer don’t care
for

Fig: 7.1 – ANALYSIS OF CUSTOMERS

 Customer Lifetime Value
• Companies must value their profitable
customers and try to know more about them,
such as their habits and expectations, in order
to strategize in satisfying them as they are the
foundation on which their business stands.
• All plans should be centered around
allocating resources to these customers, giving
them the right product at the right time
ensuring that their satisfaction level is high.
Exhibit- 7.1 - Calculating the Customer Life time value (CLV) of a Mobile Service
Provider

Suppose a customer for a mobile service provider does a regular recharge of Rs 200/-
per month for his mobile every month. This is basically for a specific plan being
provided through the mobile service provider. So Rs 200 is the average value earned by
that particular customer. This is done by him regularly every month for a year. This
comes to 12 times a year. His retention time is 3 years then the CLV (Customer Life
Time value will be computed as

Rs 200 x 12 months x 3 years = Rs 7200 in total revenues and Rs 2400 per year.
Calculating Customer Lifetime Value

CLV can be calculated as follows: (In this the period is a year)

,
Where,
Signifies the gross contribution in the whole year by one customer,
Signifies the cost of retaining in the whole year of one customer
Signifies the horizon calculated in years,

Signifies the retention rate calculated on a yearly basis, and

,
Signifies the discount rate calculated on a yearly basis.
 Simple models

CLV can also be calculated in the planning stages where it can be computed by putting the following values

(Average sales value) x (Number of repeated transactions) x (Average Retention Time calculated for a customer
(in months/ years).
Issues in Calculating Lifetime value

• Lack of data – The historical availability of data

in organization is not
• Lost customers
• Newer company
• Choosing a formula
 Loyalty Program
Two types of loyalty programs devised by organization

1. Bought loyalty – based on points and freebies provided by the

company to its customers on a regular basis on their purchases. But
the company keeps these points locked for a particular period so
that the consumer keeps making purchases to redeem these points.
2. Earned loyalty – designed with an objective that the customers
relate with them emotionally. These include everything from
product/service development to marketing and sales execution.

a) Limited loyalty programs – those programs that are open to only

limited customers and are restricted by certain terms and
conditions .e.g. Table-7.1-Starbucks Loyalty Rewards
b) Open loyalty programs – those programs that are open to all and do
not involve a formal application process.
 WELCOME GREEN (after GOLD (after collecting 25 stars in 12
Register your card- months)
collecting 5 stars)
Earn your first reward
A tall drink to make the A tall drink to make the customers
A tall drink to make customers birthday special birthday special
the birthday of the Enjoy a free beverage customization on
Enjoy a free beverage any beverage of your choice
customer special customization on any Enjoy a free tall hot drinks on purchase of
beverage of your choice 250 gm whole bean coffee.
Every free size upgrades for featured
Enjoy a free Size beverages during the first 2 weeks of its
Enjoy a free tall hot
upgrade on your drinks on purchase of 250 launch.
With a personalized gold card to make the
beverage gm whole bean coffee. customer special and treated VIP by the
store partner
Every free size upgrades for A tall drink free every time the customer
featured beverages earns 10 stars.
during the first 2 weeks Enjoy special offers by opting to receive
of its launch. e-mails.

: 7.1 – STARBUCKS LOYALTY REWARDS

 Devising a loyalty program

1. Goals – to increase revenue, profit and market share

2. Target group – include those customers with whom the company intends
to develop its long term relationship ( Fig 7.3 – RETAIL –SRS VALUE CLUB
CARD)
3. Types – either an open where membership is open to all or limited loyalty
program where membership is curtailed by certain terms and conditions
which may either be entry fees/ annual membership fee to be paid along
with the filled membership form (Fig-7.4 –TAJ HOTELS)
4. Benefits – to entice the customers and motivate them to remain with the
company and derive advantages in future deals (Fig -7.5 – CREDIT CARDS
WITH BONUS BENEFITS – THE CASE OF CITIBANK CARD & Fig-7.6-
RESTAURANT CHAIN TGI FRIDAY, INDIA))
5. Pricing – as a value driver based on the environment and market
conditions on a long term basis (Fig-7.7- PAYBACK LOYALTY PROGRAM).
 Devising a loyalty program
6. Financials –cost of developing, launching and running a loyalty
program should not be taken as a cost but as an investment and a
marketing tool.
7. Communication – to create opportunities to communicate with its
members, employees and management of the organization,
external loyalty program management which includes the media,
industry, external partners etc. (Fig-7.8 – SHOPPERS STOP-FIRST
CITIZEN LOYALTY PROGRAM)
8. Database – an important differentiator in loyalty management of
its customers and data mining which is done before launching
customized marketing activities such as communication and other
product offers
9. Measuring its success – success of a particular loyalty program is
measured on a long-term basis either through quantitative goals or
qualitative goals (Fig-7.9- MEASUREMENT OF SUCCESS IN A LOYALTY
PROGRAM)
 Fig: 7.2 – Loyalty Circle
(Source: www.crmtrends.com)
 VERTICAL REWARDS PERCENT GIVEN

SRS VALUE BAZAR (FMCG) 0.5 %

SRS FASHION WEAR (APPARELS) 1%

SRS CINEMA (BOX OFFICE) 1%

SRS CINEMA (CONCESSIONNAIRE) 2%

SRS JEWELS Gold Jewellery-10% on making charges

Fig :7.3- RETAIL – SRS VALUE CLUB CARD

 TAJ MEMBERSHIP TIERS

ELIGIBILITY COPPER SILVER GOLD PLATINUM

EARN RATE Entry Tier 10 nights or 1 40 nights or 4 lakhs 80 nights or 8 lakhs
lakh of eligibility of eligibility spends of eligibility spends
spends

BENEFITS 1 point per 1 point per Rs 100 1 point per Rs 70 1 point per Rs 60
Rs 125

Late check out Upgrade vouchers Upgrade vouchers

10 percent 15 percent 20 percent discount
discount on room discount on room on room
redemptions redemptions redemptions
Early check Early check in/late
in/late checkouts check outs
24 hour check in
Dedicated platinum
line
In room check in
Signature Taj
Experiences

Fig: 7.4 –TAJ HOTELS

TYPE OF CARD POINTS EARNED /Rs ON SPENDS AS POINTS
ON NORMAL CATEGORIES EARNED/Rs SPENT
SPENDINGS

CITIBANK REWARDS 1point/Rs 125 Apparel, departmental 10 points/ Rs 125

CARD stores & featured
partners

INDIANOIL CITIBANK 1 point/Rs 150 Indian Oil outlets& 4 points/ Rs 150

TITANIUM & PLATINUM featured partners 2 points/ Rs 150
CARDS Grocery stores

CITIBANK PREMIER MILES 1 point/Rs 100 Airline spends & 2 points/ Rs 150
CARD featured partners

CITIBANK CASHBACK 1 point/Rs 200 Movies, Telephones 10 miles/ Rs 100

CARD & utilities

CITIBANK CORPORATE 1 point/Rs 125 10 points/ Rs 200

CARD

FIRST CITIZEN CITIBANK 1 point/Rs 100 At Shoppers Stop 5 points/ Rs 100

TITANIUM GOLDEN GLOW At Shoppers Stop 7 points/ Rs 100
CREDIT CARD Exclusive Labels 3 points/ Rs 125
Hospital & Utility

CITI PRESTIGE CREDIT CARD 1 point/Rs 100 International 2 points/Rs 100

Transactions
 STRIPES ITEMS

ON BECOMING A Free Chicken wings and if you are a vegetarian, you are awarded
MEMBER with Mozarella Sticks on their first visit.

200 STRIPES One dessert.

300 STRIPES Berger/Pasta

400 STRIPES Mojito/Margarita or Chicken main/Pizza/Vegetarian main

800 STRIPES ½ rack of Ribs/Sea food/Cottage Cheese Fajita

Fig: 7.6 – RESTAURANT CHAIN TGI FRIDAY, INDIA

AMERICAN EXPRESS Upto 7 points/Rs 100 HINDUSTAN PETROLEUM 1 point/Rs 100

BIG BAZAR 2 points/Rs 200 ICICI BANK CREDIT Upto6 points/Rs 100 based on the type of card
CARDS

BOOK MY SHOW 4 points/Rs 100 ICICI BANK DEBIT Upto10 points/Rs 200 based on the type of card
CARDS
ICICI BANK MY SAVING
BRAND FACTORY 2 points/Rs 200 Points on net banking transaction
REWARD

CENTRAL 2 points/Rs 100 JABONG 4 points/Rs 100

ebay.in 1 point/Rs 25 FLIPKART 2 points/Rs 100 + Bonus points

eZone online.in 3 points/Rs 200 MAKE MY TRIP 3 points/Rs 100

Future Lifestyle Fashions 4 points/Rs 100 NAAPTOL 4 points/Rs 100

(FLF)

Food Bazar 2 points/Rs 200 PANTALOON 1 point/Rs 100

Home Town 4 points/Rs 200 SAMSUNG MOBILES Upto6000 points

TRIDENT PRIVILEDGE Upto 7 points/Rs 100 AMAZON.IN 6 point/Rs 100

VODAFONE Upto 7 points/Rs 100 SURAT DIAMONDS 8 points/Rs 100

JEWELLERY

SHOPCLUES.COM 2 points/Rs 100 + SNAPDEAL 3 points/Rs 100

Bonus

Fig: 7.7 – PAYBACK LOYALTY PROGRAM

 CLASSIC CARD SILVER EDGE GOLDEN GLOW

100 bonus points If the customer shops for If the customer shops for Rs
1 reward point for every Rs Rs 10,000 and above 40,000 and above within 2
100 spent within 2 years, his card years, his card will get
will get converted into converted into Golden Glow.
Silver Edge

1 REWARD POINT = Rs 0.70

Fig: 7.8 – SHOPPERS STOP - FIRST CITIZEN LOYALTY PROGRAM

 Seven Steps to build loyalty
1. Foresee the wishes of your customers
2. Have patience in recruiting
3. Develop a customer-centric attitude
4. Acknowledge every customer who comes back
5. Be perfect in your hellos and goodbyes to your
customers
6. Be fast in your service
7. Enhance your personality
 Recovery management
Achieving profitability in organizations means
creating relationships. This is possible only by
identifying the right segments and finding
ways to reinforce their loyalty
 Service Recovery
Any problem which emanates in a service organization,
service recovery becomes a building block for creating
loyal customer and this must therefore be done at the
appropriate time
Analyze defection of customers and address key churn
drivers for better recovery management through analyzing
• Service mistakes
• Errors in billing
• Uncaring and unresponsive staff
• Negative/reluctant response of the service staff
• Higher pricing
• Inconvenience/inactive service handling
 Plan for service recovery and
Create relationship with
create feedback systems
customers and build loyalty
customers

Improve the quality of service and enhance productivity

in organizations

Fig: 7.10 - Implementing better service strategies

 Implement Effective Complaint Handling
Procedures and Service Recovery
• Making the feedback process accessible for
customers
• Enable an effective service recovery system
- Recovery procedures should be proactive
- Recovery skills must be taught
- Recovery to be done by empowered employees
- Compensation
- Positioning of the company
- Identify the affected customers
 Dealing with Customers who complain
• Act fast
• Acknowledge the feelings of the customer
• Avoid argument with the customer
• Show that the company’s personnel understands the problem
from the customers viewpoint
• Clarify the truth and sort out the cause
• Give the customer the benefit of doubt
• Keep the customers informed on progress of any
grievances/complaints
• Consider compensating them
• Self-checking of their system and then pursuing it further
elegantly
 Effective Service Recovery System
1. Measuring the costs for building an effective service
recovery system. It should include the indirect costs
also incurred when a customer departs unhappily.
2. Breaking the silence of customers and listen closely
for their complaints.
3. To act fast.
4. The front line employees must be trained specifically
to handle these tactical situations and must be
empowered by organization to handle it properly.
5. Closing of the customer feedback loop.
 Product Recovery
The recovery of a product also happens in a
similar way to the service recovery but the
only difference lies is the tangibility part. In
this case the job of the company is basically to
take care of their warranty provided by the
company.
 Customer Complaint Management System
1. Channels for feedback
2. Complaint log layout and database of received
complaints
• Date of complaint
• Information of the receiver
• Information of customer
• Information of product/service
• Complaint of the customer based on the statement of the customer
• Person accountable for complaint
• Complaint classification from the viewpoint of the organization
• Fast action taken to resolve the incident with its due date
• Confirmation of customer on the resolution of complaint
• Root cause of the problem
• Corrective action to prevent the repetition of complaints
• Confirmation of corrective action done by independent party or automated system
Customer Complaint Management System

3. Responsibility of complaints management

4. Internal communications system
5. Standard operating procedures (SOPs)

• When to do the action

• Who should do the action
• How to do the action
• What is the action

6. Customer confirmation in problem solving

 Customer files a complaint and the system records it

System defines the person responsible for redressing the complaint

Responsible staff who has to address the complaint reviews the case defines
action

Responsible staff implements the action with his/her team

Customer is informed about solving of his/her complaint and confirms its closure

Fig: 7.11 - Customer Complaints Management Process

 Customers Experience Management
• Functional clues: which points to the
technical aspect of the offering .
• Mechanical clues: which relates to the non-
human elements such as the design of the
facility …… kitchen is far off…..

• Human clues: which relates to the behavior

and the appearance of the employees
Customer Retention Management
• identify the key churn drivers,
• identify the customers who might be the likely
defectors, and
• optimize the operational costs of the company
by developing a customer focused strategy
 Reasons for switching of the consumer
Switching of customers happens because of the
following reasons:
1. Pricing – which may be high, unfair and deceptive
based on the market conditions and not favored by
the target segment.
2. Inconvenience – caused by the irregularity of service
as it resulted in waiting time for redressing the same
as appointment was not easily given. Milk
3. Core service failure - service mistakes done by them
as well as billing errors.
 Reasons for switching of the consumer
4. Service encounter failure – uncaring attitude,
impolite approach as well as unresponsive behavior.
5. Response to service failure – negative attitude,
neutral and a reluctant approach.
6. Competition – when they find a better service for
them.
7. Ethical problem – cheating with each other or being
unsafe for others
8. Involuntary switching – customer has moved,
provider is closed.
 Customer Retention strategies
includes creation of an appropriate and viable
business environment in the organization with
the presence of well trained staff who try their
best to delight the customer and enhance
their loyalty with the company.
 Efforts adopted to enhance Customer Retention
By adopting the right customer practices, with a genuine desire
and interest helps the company to provide the best experiences
to their customers for achieving its CRM’s goal as well as also
help the companies in customer retention.

1. Encouraging customers to give feedback - The company must

encourage their customers to give their feedback after the
completion of their transaction as this will provide them more
knowledge in regards to their customers and help them further
from their valued suggestions and advice.

These evaluations further help them in improving their workings

as well as fine tuning of their strategies based on the received
feedback and suggestions at different times.
 Efforts adopted to enhance Customer Retention

2.Engaging with their customers -It has become

important to counteract the loss of customers in
their organizations, and must be done at all stages
involving different activities done in the
organization.

3.Educating the customer - in regards to its product

and enhance its customer experience so that the
customer understands the product and get more
convinced to buy the product. This enhances
retention of its customers and its loyalty towards
the product/brand.
 Efforts adopted to enhance Customer Retention

5. Caring for customers – Business needs efforts to ensure that they care for their
customers and also ensure that they are their first priority. This can be done
through different ways by asking themselves several questions like:

- What information must they seek from customers?

What is the most productive way to use these information and plan ways to benefit the
customer?

Can they think of any alternatives through which they may enhance the experience of
their customers?

Do they have the necessary required resources and technology to implement

CRM in a better way?

What other resources will they require to enhance their customer retention in markets?
 ENCOURAGING THEIR CUSTOMERS TO GIVE FEEDBACK

ENGAGING WITH THEIR CUSTOMER

EDUCATING TTHEIR CUSTOMER

ENGAGING WITH ITSCUSTOMER

CARING FOR ITS CUSTOMERS

Fig: 7.14- STEPS FOR ENHANCING CUSTOMER RETENTION IN THE ORGANIZATION

 Benefits of Customer Retention Programs

• They help the organization in organizing

important data of customers and use it in
understanding them and then deal with them
further
• This helps them in taking valuable customer
decisions and help the organization in making
their customer feel special
• They increase the quality of their customer
service and also enhances its customer loyalty
 Drawbacks of Customer Retention Programs

• Incurs huge costs for the organization and the

organization therefore become reluctant in
adopting this program.

• It is therefore important for the organization

to focus more on visualized returns rather
than on the costs in this process as this
stimulates the growth as well as profitability in
organization.
 Customer Recall Management
Most of the companies today try to work with the data
of customers who were their clients and now they
have stopped doing business with them. They try to
contact these old customers with new and improved
products and offers. They are convinced of a better
experience this time. In this process, either they are
won based on the following strategies:

• Personalization strategy – where they are given

products or services to suit them based on specific
situations. In this the company makes the effort that
the experiences they had before will not happen again
 Customer Recall Management

• Differentiation strategy – They are also approached by

plans or products which are given to them by creating a
differentiation in its dealing. This is done so that they
feel that they are cared for and be convinced that the
experiences which happened will not happen again and
they are also given guarantees in this regard.

• Customer delight strategy – This strategy is done based

on analyzing their consumer behavior and then
managing a product/ service that delights them as it is
based on their likings which is not easily available
anywhere.