Exit barriers for Customer Retention  

Customer Retention and Satisfaction

Given high customer acquisition cost, its must to retain and keep existing customers satisfied.

Exit barriers for Customer Retention

Customer retention can be enabled by ethical exit barriers, which not only helps retain the customer but also add to customer satisfaction. These include understanding customer domain, exit clauses in contracts, your terminal in customer's premises, providing value-added services etc.

One trick for achieving customer retention (and also satisfaction to certain extent) is to create exit barriers, without being unethical or stealthy. Exit barriers help retain customer, as customer see an expense in moving away from you or switching to competition. Exit barriers can be fairly effective. However, they should be considered as the enablers for customer retention and not the core tools for retention. An organization becoming callous towards the customer, because of strong exit barriers will not have sustainable business. The unfair exit barriers may scare away the new customers or they can reduce customer spending or repeat purchase with you even if they are not leaving you.

Some more points to note before we get onto the list of ethical exit barriers:

  • Many of the exit barriers and their effectiveness are dependent upon the competition landscape. You may not be able to choose on which exit barrier you can place.
  • Many of the Exit barriers listed here are not pure exit barriers. They also contribute significantly to the customer satisfaction, even if they were not the exit barriers.

Here are some ethical and healthy exit barriers you can place

The exit penalty as part of your contract

One can have open contractual terms of placing an exit penalty. The exit penalty has two aspects. One is to cover you for the financial loss you will incur due to early customer exit. Other is that it may retain the customer. Some examples of exit penalty in this category are:

  • Pre-payment charges for the long commercial or retail loans
  • Part of the balance contract payment for pre-mature contract closure
  • Forfeiture of annual fee for cancellation of the card before a year

Your IT implant in the customers area

If you are having an institutional customer, you can create your terminal in the customers office, enabling an online exchange of information and business transactions. You can use this terminal to provide value added information. Once the customer gets used to this terminal, and its employees are trained to use it, it will be difficult for the customer to detach itself. For example- a broker provides his trading terminal in treasury office of the corporate customer.

Providing Productivity tools to the customer

For example- If you are a corporate bank, you can provide financial management tools, which a customer can use, which can integrate well with your corporate finance services. These productivity tools go beyond the usage of your services, but help in internal productivity of the customer's employees.

Provide value add information

Get your customer addicted to the industry updates, tips on how your customer can make his/her business more effective by a better use of yours (or even your competitor's) products.

Understand your customers domain and business

For institutional customers, more you are able to demonstrate the knowledge of their business and domain, more you will get entrenched with them. Just like an experienced and knowledgeable employee, a customer will see the investment he has done in you, which he will not be keen to throw-away. Secondly, with your knowledge of the customer's world, you will be more productive and customer will be able to relate better with you.

This concept can also be extended to the 'relationship manager'. Good relationship managers, who understand the customer, can be great asset. Many a times the relationship managers carry the business along with them as they switch their employers.

Customize your product for the customer

If the customer has special needs, and you are changing or customizing your product accordingly (like a corporate insurance deal or software), you get a great exit barrier. The reasons are that a customer will not have the band-width to get the same customization done with another service provider, and secondly re-customization may be double cost for the customer.

Some examples of unethical exit barriers are:

  • Products with non-open proprietary architecture
  • Fine-prints
  • Exit barriers not mentioned in the contractual
  • Lack of portability of the identity. For example, in India, you cannot change your telecom provider while retaining your telephone number.