Saturday, February 9, 2013

Customer Retention of Contract Customers

The customer Institute usually publishes information regarding a specific research topic. This blog will be different in that it is primarily commentary. The topic of this blog "customer retention" will focus on companies that have long-term contracts with their customers. Customers with long-term contracts are very different from customers that are dealt with one event at a time with no long term commitment.

A study was done by the customer Institute several years ago that examined the migration of customers between competing companies. The objective of the study was to examine the roles of customer acquisition versus customer retention. One of the most interesting outcomes of the study was that the impact of customer retention (increasing the rate of contract renewal) on market share was greater than the impact of customer acquisition.

One of the challenges that companies (with long-term contracts with their customers) have is remembering the value of that customer even when the long-term relationship has been legally consummated and now is the time to start supporting the customer. Companies can easily become complacent once that long-term agreement is signed.  It becomes very easy to give the long-term customer lower priority than the potential new customer. However, it is important to remember that the long-term value of the customer (with the long-term contract) is greater than the short term opportunity.

The bottom line is that companies who develop long-term contracts with their customers need to focus on  retaining those customers. Long-term growth in market share comes from increasing retention rates of those customers with long-term contracts. In other words, the long-term customers represent your greatest opportunity for growth and market share.

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