Researchers indicate that companies with higher customer retention tend to perform better financially. Ryals (2009) argues that this phenomenon is true where the costs of customer acquisition are higher than the costs of retention and the customers that are retained have a positive customer lifetime value. It is important to note that if the per-customer costs of customer acquisition are higher than the per-customer costs of customer retention, it pays the company to invest more in customer retention than in customer acquisition. To make sound decisions about the balance between customer acquisition and customer retention, companies need to understand the actual costs they incur and in addition factor in the likely effect that changing the customer retention expenditure would have on the customer retention rate (Ryals, 2009).
Baker & Hart (2008) argues that customer acquisition process is specifically concerned with acquiring customers at a lower cost, acquiring more and attractive customers. Customer retention has an advantage over acquisition because the starting point in understanding customer value is to determine the existing customer acquisition costs within the existing channels that are utilized and to determine how these vary across different segments.
According to Baker & Hart (2008), it costs around five times more to get a new customer than to keep an existing one. Despite this finding many companies have traditionally focused their marketing activity on acquiring new customers, rather than retaining existing customers. Baker & Hart (2008) also noted that a small increase in customer retention produced a dramatic and positive effect on profitability. In their research, Baker & Hart (2008) found out that a 5% point increase in customer retention yielded a very high improvement in profitability in net present value terms. This therefore implies that the cost of acquiring new customers is considerably higher than the cost of serving existing customers.
Customer retention provides the opportunity of using existing customers to attract new ones. Baker & Hart (2008) thus say that creating advocacy amongst the existing customers through delivering a superior value proposition results in better service and higher rates of retention than that of the competition. Because customer acquisition is a very expensive affair and since the relationship developed during the acquisition phase strongly influences retention and add-on selling, it must be carefully managed and evaluated.
Many of the desirable outcomes associated with positive customer satisfaction are due to its effects on customer retention. Allen & Wilburn (2002) says that customer retention leads to superior financial performance because firms with high customer retention rates tend to have lower costs, maintain more profitable long-term relationships and enjoy substantial word of mouth advertising. In some business-to-business relationships, it is difficult to measure customer retention despite the fact that market share statistics are readily available. Allen & Wilburn (2002) says that it must be stressed many of the positive outcomes associated with high levels of customer satisfaction are exerted through customer retention in pre-sale and post-sale services provided to the customer.
In the business-to-consumer relationship whereby pre-sale services are offered, it is difficult to quantify customer retention because customers frequently are anonymous (Allen & Wilburn, 2002). In the business to consumer relationship, customer retention is all about the customer experience from pre sale to post sale and hence the golden rule here is to treat the customer well.
Havaldar & Cavale (2006) says that in business to business and business to consumer types of transactions every relationship is an exchange which is the process of obtaining a desired product or service from someone by offering something in return. Presales and post-sales support are fundamental in customer retention in the perspective of transactional, value-added and collaborative partnering relationship selling.
Customer retention is important in collaborative or partnering relationship selling because both selling and buying organizations work collaboratively to lower the total costs or increase value in order to achieve mutual benefits (Havaldar & Cavale, 2006). Pre-sales and post-sales services are important in transaction oriented selling where after the product or service is sold, the customer is not contacted again hence the relationship is not extended (Havaldar & Cavale, 2006).
Moreover, customer retention is important in value-added business relationship were the focus is on the salesperson understanding the current and future needs of the customer correctly and meeting those needs better than the competitors (Havaldar & Cavale, 2006). This can largely be achieved through presale support services offered to the customers such as ease of ordering, rapid, on time, and accurate delivery and post-sale support such as field service, warranties and technical support. If competitors offer better choices for a similar price, consumers will rationally select package with the highest perceived quality.
Evans & Lindsay (2008) says that both business to business and business to customer must focus on presales and post-sales support to improve customer retention because they are the basis of customer perception of value and they are crucial to competitive success. This means that businesses must focus on both continually improving the consumer benefit package and improving quality of their internal operations.
In conclusion, customer retention, satisfaction and loyalty are influenced greatly by presale and post-sale support because they strengthen the relationships organizations build with customers. Customers are therefore fives more likely to be retained because of good support than issues related to price concerns or product quality problems. The goal of customer retention is to leverage customer acquisition investments. It makes sense to find ways and mechanisms to extend the duration of the relationship between firm and customer. Customer retention through transactional, value-added and collaborative partnering relationship selling combined with presales and post-sales support is more important due to lack of sufficient information about new customers.