Building customer satisfaction, value, and retention: Value and Retention | Management Optional Notes for UPSC PDF Download

Introduction

Value is crucial in the business sector, where maintaining prosperity requires a focus on customer satisfaction and trustworthiness. A company can enhance customer satisfaction by providing valuable products, encouraging repeated purchases, and meeting customer needs. Customer value is defined as the evaluation of the difference between the benefits and costs of products, representing the ratio of perceived benefits to resources invested.

• Perceived value, as outlined by Schiffman (2007), is subjective and relative. Woodruff (1997) suggests that it involves a customer's perceived preference for product attributes, performances, and consequences that facilitate or hinder the achievement of their goals.
• To generate customer value, Michael Porter's value chain is a useful framework, encompassing inbound and outbound logistics, operations, sales and marketing activities, and customer service. Primary activities are supported by secondary activities like procurement, technology development, human resource management, and firm infrastructure.
• High customer loyalty, as revealed in academic literature, results from delivering high customer value. Companies should craft a competitively superior value proposition for a specific market segment, following Michael Lanning's approach.
• Survival in a competitive market involves five capabilities: understanding, creating, delivering, capturing, and sustaining customer value. Customer value analysis requires recognizing key attributes, assessing their qualitative importance, evaluating company and competitor performance, investigating specific segments, and monitoring customer values over time.
• Dimensions of customer values encompass conformance to requirements, product selection, price and brands, value-added services, and relationships and experiences.

Determinants of Customer Value

Customer Retention

• Numerous companies lose customers due to ineffective marketing strategies. Existing literature maintains that by maximizing customer satisfaction, companies can prolong customer relationships, resulting in continued contributions to profits. 
• The primary goal of consistently and more effectively providing value to clients than competitors is to retain satisfied customers. This customer retention strategy aims to incentivize customers to stay with the company instead of switching to other firms.

The Significance of Customer Retention

• Observations indicate that companies often prioritize efforts to attract new customers while neglecting customer retention. Satisfied customers tend to be loyal customers. Studies demonstrate that even a slight reduction in customer defections can lead to a substantial increase in profit because loyal customers make more purchases, exhibit less price sensitivity, and are less swayed by competitors' advertisements. Loyal customers also contribute positively through word of mouth and referrals. Moreover, attracting new customers through marketing efforts is an expensive endeavor.
• Marketers who set increasing customer retention rates as a strategic corporate goal must acknowledge that not all customers hold equal value. Modern marketers establish selective relationships with customers based on their profitability ranking rather than merely retaining them. In a customer retention strategy, companies closely monitor customer consumption patterns, classify customers into tiers based on profitability, and develop tailored strategies for each group. Aspinall et al. (2001) noted that 54 percent of companies perceived customer retention as more significant than customer acquisition. Marketing literature underscores the benefits of retaining customers (Ahmad and Buttle, 2002). 
• Retaining customers offers advantages to organizations, including higher margins and faster growth, as the duration of a customer's association with an organization generally correlates with higher revenue. Dawes and Swailes (1999) highlight that successful customer retention reduces the costs associated with acquiring new and potentially risky customers, allowing organizations to focus more precisely on the needs of their existing clientele through relationship-building (pp: 36). Researchers have also identified that customer retention significantly impacts profitability, positive customer satisfaction, and overall financial performance.
• Categorizing customers based on profitability levels goes beyond traditional segmentation marketing methods, which rely on demographic, sociocultural, or behavioral characteristics. Consumer profitability-focused marketing assesses the cost and revenue associated with individual customers, categorizing them into tiers based on consumption behavior specific to the company's offerings. These strategies provide valuable insights into customer behavior (Schiffman, 2007).

• Crafting an effective strategy for customer retention necessitates meticulous planning, encompassing comprehensive approaches such as customer identification, registration, segmentation, and reward design. For an organization to establish a sustainable competitive advantage, the strategy must consistently consider the value attributed by loyal customers, as loyalty and retention are intricately linked to the creation of value (Morgan et al., 2000).

In summary, it is asserted that a profound comprehension of customer value can lead to successful marketing when a company directs its efforts towards customers with the highest potential value, rather than solely focusing on those with the highest current value. In the fiercely competitive and saturated business market, customer retention emerges as a vital component for business prosperity. A business philosophy centered on customer value, satisfaction, and retention extends beyond traditional marketing concepts, introducing new dimensions to the field of marketing.