Thursday, May 20, 2010


Satisfaction suffices, delight dazzles, but an enthralled customer acts like a brand advocate. Thus, a marketer’s aim should be to have customers who are both satisfied and enthusiastic towards his brand. And how? By building relationships!

A well known brand of writing instruments received a package at its corporate office. The infuriated buyer had used all the invectives he presumably knew to lambaste the brand and had returned the non-functioning pen. He received a package in turn by return mail containing a new pen. Plus a letter which politely reminded him that the pen that he had sent to the said company actually was from another brand! Nonetheless, for the effort he had expended this company was sending him its complements. This is relationship building at its best.

Yours truly bought an expensive pair of leather shoes of an internationally reputed brand. Upon discovering manufacturing deficiencies a replacement was sought. The company flatly refused. The buyer has vowed never to buy again from the same manufacturer as also to influence others to do likewise. Incidentally, while one in two of the existing customer is likely to repeat purchase a brand, only 1 out of 16 prospective customers is likely to do so. On average a company loses 15% of its customers every year; in three years it would have lost nearly 50% of them. Retention marketing is surely worth the efforts. Strive to hold on to your customers.

Bordello need not be the only place where customer comes first!

An enthralled customer acts like a brand advocate. A brand has to overconform to customer expectations first time, every time. Marketing is no longer transaction oriented where one time sale signals is an end to the interface between the brand and its customer. Relationship entails a logical affiliation, a mutually beneficial association. Relationship marketing is based on 4 R’s of marketing: recruitment (of customers), reaping (the pay off), retaining, and regaining (in case of attrition) of valued customers. And why not? A Michigan University study found that higher the loyalty, greater were the returns on the company assets. Another study calculated that at 40% customer retention rate the customers will spend about $9 million extra on the marketer’s offering, while at 90% retention rate the additional earnings would be $24 million.

Closer home, HTA (now JWT) estimated that lifetime value (LTV) of a cigarette smoker was Rs.1.10 lakh over a 10 year period, i.e., roughly 7,000 times the value of a single pack of a cigarette. LTV of all consumer products and services over 25 years period for a typical household amounts to Rs.14 crore (at 1995-96 prices). Include the household’s role of it being an influencer and the value goes up to Rs.25 crore. A typical 10 trucks fleet owner in India buys tyres worth nearly Rs.1.68 crore for his fleet. Due to a successful CRM Program Apollo Tyres extended a privilege card scheme to 42,000 of them out of an estimated 1,50,000 trucks owners. We could multiply the examples.

The aim should be to have customers who are both satisfied and enthusiastic towards the marketer’s brand. A customer who is high on satisfaction and high on enthusiasm is a star customer whereas someone who is low on both these counts is a potential defector.

Similarly, a customer who is low on loyalty and low on satisfaction acts like a terrorist, dissatisfied and highly critical of the brand; he is constantly spreading negative word of mouth. Even a highly satisfied but low on loyalty customer acts like a mercenary, satisfied but does not find the brand uniquely beneficial, he is constantly looking around for a better deal.

Is it chuk de or cheque de?

Relationship building is of course neither easy nor straight forward. Surely a scheme to add extra miles on the loyalty card of frequent flyer would definitely be an insensitive compensation for the horrifying experience of the airplane door throwing open mid-air (no exaggeration; it had actually happened in India)! Indeed the buyer seller relationship evolves through four successive stages. In stage 1 there exist a predetermined group of buyers who will certainly buy. Individual differences don’t matter. Products are created without much feedback from the customers. Communication is one way only. Monopoly suppliers like electricity distribution companies are typical example. In stage 2 the customer becomes an individual statistic, but without much of a unique identity. Database on him exits. Customer is spoken to, feedback obtained, and change is incorporated towards redesigning the product. Auto companies follow this approach. In stage 3 a customer is identified as a unique individual with specific wants. The products are reconfigured based on deep understanding of his needs. Communication is one to one. Custom building of car bodies by Dilip Chhabaria perhaps conforms to this model. Finally in stage 4, the customer is treated as co-creator, a partner. Marketer holds an active dialogue with him. Most fashion designers fabricating for film stars would aptly illustrate this category.

Bonding between customers & brands that they use could be positive, when the relationship is assessed to be fruitful & voluntarily maintained, or neutral, when it is fruitful but involuntary, and negative, when the relationship is sought to be avoided by the customer.

So, whether the customer would spurn a brand, will be a hostage to it, or will cherish the bonding will depend on the type of relationship he maintains with it. Bajaj Scooters started performing poorly, even though Honda subsequently launched successful models in the same category. Nearly 58% of Maruti buyers repeat their purchase from Maruti family. More than 80% of new vehicle owners are satisfied with originally fitted tyres; not only they would like to repurchase the same brand, they are highly likely to recommend the same brand to others, says JD Power 2010 India Original Equipment Tire Customer Satisfaction Study. In the premium chocolate segment, brands like Lindt, Hershey’s, Patchi, et al, have strong brand loyalty. On the other hand, majority cellphone service users are dissatisfied with their service provider; in one phase 31% were terrorists, 25% were mercenaries, and 11% were in the hostages’ category. Put it the other way, 67% market was open to being lured by the rivals.

Slime in the Lotus Pond

Remember, however, that neither all loyal customers are worth retaining nor for that matter all disloyal/less loyal customers should be allowed to migrate. We need to juxtapose loyalty factor on to the LTV of the customer. Thus, we may have a failed ferrous (low loyalty, low LTV) who is a good riddance, or a spent silver (high loyalty, but low LTV) who should be induced to part company, gilded gold (low loyalty but high LTV) who needs to be cultivated, or precious platinum (high loyalty and high LTV) in whose case the brand must travel the extra mile to retain him.

The crunch however lies in implementing the CRM program. The customer is no help at all. A recent KPMG survey reports that while customers expect the sellers to have a detailed understanding of the former, they are unwilling to provide companies with personal information. 79% want marketers to remember their preferences but only 39% would allow them to collate data on them as individuals. 54% of potentials customers feel unhappy about being contacted by new suppliers. Why, nearly 33% would be irritated if informed about new or other products even by their existing suppliers.

CRM is a commitment to a fundamental philosophy which in turn needs to be converted into integrated systems supported by proven technologies. Apollo Tyers put together the Apollo membership centre through which the company tracks its sales and even finds out when the brand switch happens. For instance, if an average truck requires at least eight tyres a year and an AMC member does not return to buy new tyres, there is a possibility of brand switch. Apollo Tyres immediately contacts the customer to reason why.

Khushwant Singh once said that monogamy is an institution forced upon human beings through social sanctions. It does not come to them naturally. Most of us are infidel by natural instinct. The job of a marketer is to curb this instinct. This is what retention marketing is all about. Period.