At I lie same lime. (inline companies need to make sure iheir attempts io create relationships with customers don't backfire, us when tuitonws arc bombarded by computergenerated ^commendations that consistently miss the mark, liny lot of baby gifts on Amazon, and your personalized recommendations suddenly don't look so personal. 1-,-tgflcrs need in recognize the limitations ul'online personalization at liir same time til at they irj harder to lind technology and processes that really work,

Companies are also recognizing the importance of the personal component to GUM and what happens once customers make eternal contact. As Stanford's business guru leffrei PfelTer ¡mis it, "the best companies build culture; in which front dine people are empowered to do what's needed tu take care of the customer." tie cites examples of firms like SA$, tlif: Scandinavian airline, which engineered a turnaround in part based on the insight ihat a customer's impressions of a company are formed through a myriad of Small interactions— checking in, boarding the plane, eating a meal, and so on.M

Reducing Customer Defection

"I here are five main steps a company can take lo reduce the defection rate.

First, the company must define and measure its retention rale. For a magazine, the renewal rate is a £ood measure of retention. For a college, ii could be the first- to second-year reteniion rate, or the class graduation rale.

creating customer value Satisfaction, ated lgvalty chapters 159

Second, the company must distinguish the causes of customer attrition and identify those that can lie managed better USce "■Marketing Memo: Asking Questions When Customers Leave.") The Forum Corporation analyzed the trust tuners lost by 1.4 major companies for reasons otiler titan leaving the region or going out of business: l.^ percent switched because they found a better product another is percent found a cheaper product; ami 70 percent left because Of poor or little attention from the supplier. Not much can he done about customers who leave the region or so out Of business, but much can lie done about those who leave because of poor service, shoddy products, or high prices/'' Third, the company needs to estimate how much profit it loses when it loses customers. In the case ofan individual customer, the lost profit is equal to the customer's lifetime value— that is, the present value of die profit stream that <be company would have realized if the customer had tint defected prematurely—through some of the calculations outlined Eiliove.

Fourth, the company needs to figure out how much ii would cost iu reduce I he defection rate, As long as the cost is less than the lost profit] ifie company should spend the money,

And finally, nothing beats listening 10 customers. Some companies have created an ongoing mechanism that keeps senior managers permanently plugged in to frotit-line customer feedback. MBNA, the credit card giant, asks every executive to listen in on telephone conversations in the customer service area drcustomer recovery Units. Deere & Company, which makes Inliu l)eere tractors and lias a superb record of customer loyalty—nearly yff percetu annual retention in some product areas—uses retired employees to interview defectors and customers.1"

Forming Strong Customer Bonds

"Marketing Memo; l-orming Strong-Customer Pontls" offers some lips oil connecting with customers, licrry and Pamsuranian have identified (lireo releitllon-bultding approaches:0' adding financial benefits, adding social benefits, and adding structural lies.

Two financial benefits that a un panics can Offer tire frequency programs and club marketing programs. Frequency programs (TPs) are designed to provide rewards to customers who buy frcqUcndy and in substantial amounts.'1" Frequency marveling is an acknowledgment of the fact that 21) percent of a company's customers might account for BO percent of iis business. Frequency programs are seen as a way to build long-term loyalty with these customers, potentially creating cross-selling opportunities in the process.

American Airlines was one til the lit si companies to pioneer a frequency program in the l'ilrly lDHOs, when it decided to offer Tree mileage credit to its customers. Hotels next adopted I Ps* with Marriott taking the lead with Its Honored Guest Program, followed by car rental firms. Then credit card companies began to offer points based on card usage level. Sears offers rebates to its Discover cardholders; and today most supermarket chains offer price . i.iln aids, which pro* ide member < ustomci s with disiohm:-, mi piutii nh.n items. ■'

Typically, the firsi company lo introduce an FP gains the most benefit, especially if competitors are slow tu respond. After competitors respond, iJfTs can become a financial bui1-ticn to all the offering companies, but some companies are more efficieni and creative in


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