Customer Satisfaction and Retention- Overview  

Customer Retention and Satisfaction

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


Customer Satisfaction and Retention- Overview


Customer Satisfaction and Retention (CSR) are closely but not completely interlinked. CSR needs to be optimized for maximizing shareholder value. Sticking to fundamentals is key to CSR over and above the customer expectation and perception management.

Customer here means the customers who have already bought and received our product OR the ones who have ordered for the product and are in midst of delivery. ‘Customer acquisition cost’ is an investment and customer satisfaction and retention (CSR) enhances shareholder value and makes your business more predictable.

Business Objective

Optimize customer satisfaction and retention to maximize shareholder value.

Key Business Questions related to Customer Retention and Satisfaction:

  • What is the level of Customer satisfaction on an overall basis and for specific parameters?
  • What have been the changes in customer satisfaction trends over time?
  • What is driving the levels of customer satisfaction, dissatisfaction and attrition?
  • What are the root-causes behind customer dissatisfaction, attrition?
  • What has been done to improve customer satisfaction, retention and how successful it has been?
  • Are my high priority customers satisfied and will be retained?
  • What have been the trends of customer attrition over different customer segments?
  • What are the key differentials in the profiles of customers leaving us vis-a-vis customers retained with us?
  • Is the cost of customer satisfaction and retention a justified business case?
  • What has been the customer behavior leading to attrition? How can I project that this customer could attrite?

Customer Satisfaction and Retention KPIs

  • Customer satisfaction score
  • Customer rate of attrition
  • %age of customer repeating purchase
  • %age of customer with declining and increasing relationship value
  • Velocity of customer repeat purchase (how often a customer is repeating the purchase)

Definition of customer satisfaction

Customer satisfaction is the measure of how well our PRODUCTS, SERVICE, SUPPORT and ENGAGEMENT are able to meet the customer EXPECTATIONS.

Break-down of the Definition of Customer Satisfaction

Customer satisfaction is a measure of how well our…

PRODUCTS- Products including physical products and services.
SERVICE- Customer service post sale. This includes responding to customer queries and issues.
SUPPORT- Repair, maintenance and upkeep of your products post sales.
ENGAGEMENET- Engaging with customer, apart from the above mentioned contexts (product, service and support). This includes offering new products, schemes, up-sell and cross-sell.

…are able to meet the customer…

EXPECTATIONS- Customer satisfaction is your delivery vis-a-vis the expectations. The way a customer interprets your delivery also defines customer satisfaction. Customer satisfaction is driven by how well you manage your delivery and how well you manage customer expectations.

Definition of Customer Retention

Customer retention is the measure of how well the customer STAYS and STAYS ENGAGED with the organization OR with specific products and services

Break-down of the definition of Customer Retention

STAYS- Customer being active and user of your product and service- This is mainly relevant to the products and services, having an existing contract. This includes banking, telecommunication and maintenance contracts.

STAYS ENGAGED- Customer who maintain OR increase the level of relationship. A customer could still be retained, while he reduces his average bank-balance, OR cancels two out of the three telecom connections he has got.

Customer Satisfaction and Customer Retention is not absolutely linear

That Customer Satisfaction leads to Customer retention is a conventional wisdom. You may have situations where a customer is satisfied, but is still not retained. You may have situations where a customer will not be satisfied, but still retained. Here are some examples of these paradoxical situations:

Satisfied Customer, but still attriting:

  • Your products are doing the right things, but they are not the right products- Your products and services could be meeting customer expectations, but customer could be attracted to more creative and functionally better products.
  • Customer wants to try something new- Customer may get bored of your product, and they just want to try something new.
  • Customer going for more competitive products- Competition is giving better price vs. value equation.

Dissatisfied customer, but retained

  • Existing contract yet to expire.
  • Supplier market- More demand than supply.
  • Customer expectations are not well managed, but customer is staying due to the value proposition of your product.
  • High Exit cost to the customer. example- Exit load for early termination of your loan with a bank.

Points to consider for Customer Satisfaction and Customer Retention (CSR)

Customer Satisfaction leads to Customer Value

Customer Satisfaction has a great co-relation with Customer Value, especially customer lifetime value. A satisfied customer

  • A satisfied customer adds to his current value, but more importantly it’s the lifetime value which the organization will gain.
  • A satisfied customer will go for repeat purchase more often.
  • A satisfied customer will give you valuable references.

Expectations management for Customer Satisfaction and Retention

One needs to align customer expectations with your products and services, and also with your SWOT. A ‘broken promise’ is worse than ‘no promise’. One can be smart and creative on defining expectations, while still maintaining integrity. Some examples are:

  • Stating the lack of functionality in your product and sharing on how competition also lacks it.
  • Working with customer on how he can still manage his needs well, by proposing work-around.
  • Sharing the genuine road-map on how you plan to cover the gaps in the future.
  • Positioning your product as a great price-value equation.

Perception management for Customer Satisfaction and retention

Your effort and strengths should be visible to your customer and customer should perceive your price-value equation is better than the competition. Your organization need to be trained to communicate and reinforce this with the customer at various touch points.

Customer Satisfaction and retention is a complete package

You cannot be perfect in everything. An organization has its strength and weaknesses. A less than adequate product can be compensated by a great customer service. A faulty product can be compensated efficient replacement and call-back strategy. A less than adequate repair infrastructure can be compensated by an excellent product and customer-friendly touch-point (your interaction points with the customer).

Nothing like doing the right things in a consistent manner

Key to the customer satisfaction and retention is to stick to the fundamentals consistently. The expectations and perception management are add-ons to the delivery capabilities of a business. A customer likes predictable organizations. A constant improvement in your capabilities and delivery and your ability to sustain is a great embedded value.

One needs to Optimize and not maximize the CSR

There is nothing like true maximization in running a business. It’s a question of balance and priorities. One will maximize a KPI, as long as it adds shareholder value. Here are some examples of your CSR optimization:

  • Focus on CSR of high value, high potential customer-segments and the customers who are aligned to your strategy. For example, telecom companies in countries, where number portability (like India) is not allowed, companies work on retaining low value (OR even negative value) customers. This is because firstly, the business model is based on low-ticket usage, and secondly there is a lesser level of churn, and this gives predictable and gradually rising income over the years.
  • Look at the cost of CSR, lest it erodes customer profitability. One needs to protect the profitability and keep a check on the cost as you invest in CSR.

CSR improvements do not happen overnight, but does not take years

Customer satisfaction and retention scores do not go up overnight, OR by a sudden ‘understand your customer’ campaign. At the same time, if you work on it consistently, you will see a visible shift in your CSR scores over few quarters OR within a year. With a comprehensive, and practical CSR strategy (aligned to your SWOT), one may not see any results in first few months, but needle starts moving over couple of quarters.

CSR has a challenge of improvement as well as sustenance

Customer expectations and benchmarks change, and one need to keep up with them to maintain and improve on the CSR. This is how a CSR can take a hit, without you having done anything wrong:

  • A competitor launches a better product.
  • Your differentiation (like no incoming call to wait for more than 3 rings...) become a hygiene item and a standard in the industry.

Magic of Trust and customer Loyalty

An organization can gain a lot if it instills a level of trust and emotional connect with the customer. An organization can build its trust and loyalty credits by:

  • Recognizing and rewarding a customer for his tenure and the value of relationship.
  • Communicating with integrity, and sharing the true picture of what they offer etc... Will gain trust from the customer. Everyone wants to work with someone who is more reliable.
  • Looking at the interest of the customer- As long as it does not hurt your share-holder value, your interaction with customer should make her feel that you are there to save her money and build her business.