498 The Marketing Book
retention rate means that we lose 10 per cent
of our customer base each year; thus, on
average we turn our customer base over every
10 years. With a 95 per cent retention rate
the lifetime doubles to 20 years.
The longer a customer stays with us, the more
they are likely to see us as a preferred
supplier, even single sourcing on us. The
evidence also suggests that the costs to
service these customers reduce as we establish
closer relationships and linkages in the supply
chain; similarly, the cost of selling to these
loyal customers diminishes.
The combined effect of a high retention rate
and the enhanced profitability of loyal
customers can lead not only to higher profit,
but to a better ‘quality of earnings’, as the
customer base is less volatile. A company with
lower market share but high customer
retention can often be more profitable than a
company with the reverse characteristics.
Figure 19.8 shows the relationship between
retention rates, customer lifetime and
profitability.
Customer satisfaction at a profit is the goal
of any CRM programme and the role of the
SCM system is to achieve defined service goals
in the most cost-effective way. The establish-
ment of these service goals is a prerequisite for
the development of appropriate logistics strate-
gies and structures. There is now widespread
acceptance that customer service requirements
can only be accurately determined through
research and competitive benchmarking.
Research amongst customers may also reveal
the presence of significant differences in service
preferences between customers, thus pointing
towards alternative bases for market segmenta-
tion based upon service needs. Knowing more
about customers’ service requirements and
how they differ can provide a powerful basis
for the development of strategies geared specif-
ically towards improving customer retention.Time-based competition
Organizations that are responsive to customer
needs also tend to focus on ‘time’ as a source of
competitive advantage (Stalk and Hout, 1990).
There are a number of key time-related dimen-
sions in marketing, e.g. time to market, time to
manufacture, time to replenish and so on.
Clearly, the faster we can complete processes
then the more quickly we can respond to
customer requirements and to market changes.Figure 19.8 Better customer retention impacts long-term profitability