Organisations are increasingly realising the importance of retaining a customer and getting more value from customer relationships. One of the key reasons for this is, of course, the oft-quoted insight that it costs nearly ten times as much to acquire a new customer than to retain an existing one. The Economic Times and Avaya sought to understand from a panel of senior executives from leading organisations in different sectors, the strategies that companies should adopt to retain customers.

Amitabh Chaturvedi, CEO, Reliance Capital Asset Management, kick-started the discussion by pointing out that it costs a lot less to retain a customer, and almost 15 times as much to acquire a new customer than to retain. Hence it's better to retain an existing customer and cross-sell multiple products to that customer. Ketan Bakshi, MD, Neilsoft, said that customers were demanding collaborative services, and the advantage with high technology and engineering driven services is that the exit barriers for customers is quite high. Akhil Agarwal, senior vice-president, Kanbay, added that it's not just loyalty but the value that one derives from the customer that is important.

Retail is one sector where it's very important to retain customers, said S Chandrasekaran, vice-president, Lifestyle. And since every retail organisation stocks nearly the same brands, differentiation can come from service levels, ambience and well-designed loyalty programmes that help retain customers. However, with high attrition rates, maintaining service levels can be challenging, he said. Nowhere is retention more critical than in the hospitality industry, and Ratan Keswani, senior vice president, The Oberoi Group, agreed. Anybody can build a great hotel; it is retaining a customer that's the challenge, he said. A customer is a brand ambassador, and hence asking for feedback is important. For instance, a hotel must understand what kind of martini a customer prefers or the kind or carnations that another customer likes in his room.

While the nature of the service challenge is different for the FMCG sector, it's equally important to retain customers, since at least 20-30% of them keep flitting between brands, said A Mahendran, MD, Godrej Sara Lee. Therefore there's a need to mass manage the customer retention strategy and that may entail huge investment. Sandeep Nair, MD, Emerson Network Power, agreed that retaining customer is a great opportunity and the payoff is significant, but he also pointed out that it's an expensive proposition.

Ashwani Kakkar, CEO, Thomas Cook India, explained that there has been a paradigm shift, which has made retention important. With increased competition, it has become difficult to reach to the customer and hence the need to focus on retaining customer. He cited research that a 5% increased ability to retain a customer translates into a 30-80% increase in profits.
Different folks need different strokes pointed Kakkar. There are time rich cash poor or cash rich time poor customers. Then there are customers who are pioneers in purchasing and there are customers who are laggards. Keswani agreed that it's very important to understand different consumer groups by age, country, buying patterns and so on in any customer retention strategy.


Everybody agreed that the human element was still very important. Kakkar said that a product or service is often actually a combination of both product and service. And in case the service component is larger, the human element becomes important. Mahendran pointed out that for the FMCG industry, the only way to address the human element was through TV advertising. Kanbay's Agrawal said that customers preferred interacting with a live call centre agent rather than an IVR system.

Kakkar pointed out that the customer wants to be retained, but is willing to try out other options. If the cost of switching for the customer is less, customer retention became even more difficult. However in some industries such as engineering and technology, the cost of switching is higher and hence the customer would tend not to take risks.

While the importance of customer retention is primarily due to the high cost of customer acquisition, it must be considered that customer retention also has a cost attached, the panelists noted. Kakkar recounted how a hotel he had checked into provided him services that were great, but they were services he probably didn't really need and which may have added to the costs.

"There has been a constant debate on what approach a company needs to adopt - should it be focusing on acquiring new customers or concentrating on retaining old ones'? There are no clear rights or wrongs. While customer retention is certainly less costly than customer acquisition, the price of holding on to clients too is going up. Since the price of retaining customers has been witnessing an upswing, companies have to focus on monitoring it and ensuring that it does not escalate beyond a point. In my view, companies looking for future growth (especially in non-contractual settings) should remember that acquisition will come about as a result of treating all customers as well as possible. By spending more on improving your core product, service and communications (within budgetary constraints), your current customers will have no pressing need to defect. More importantly, they will also help you to grow through recom mendation and referral."