The Impact of Customer Retention on Business Performance

The Impact of Customer Retention on Business Performance

CHAPTER ONE

INTRODUCTION

1.1            Background of the Study

The present competitive setting of businesses exploits customer retention in order to ensure the company’s fortification against penetrative competition (Fluss, 2010). Retention of the customer is the approach in which organizations emphasize their exertions on current customers with the aim to carry on business with them (Mostert et. al, 2009). As customers are the backbone of any business, firms without customers would not be able to sustain their performance. This is because such firms are believed to have no revenues, no profits and therefore no market value. 

Ramakrishna (2006) defines customer retention as the objective of marketing that bars customers from joining the competition. Nevertheless, customer retention can also imply the number of clients who stay with the supplier over an established period, like a year (Dawes, 2009). 

 

 

 

Customer retention is considered an important aspect in shaping the accomplishment of businesses. Fluss (2010) asserts that opponents are ever on the sentry to snip customers through superior deals. Fluss witnessed that annual customer attrition rates vary from seven percent in industries that have extraordinary withdrawal obstacles such as banking and insurance, to nearly 40 per cent in the mobile phone industry.

 

Accordingly, managing customers is deemed to be very crucial business agenda in which the key focus has been switched in recent years from attracting new customers to preserving existing ones. Both practitioners and scholars have discovered that it is much easier and cheaper to retain the exiting customers than investing on the potential customers. A decent customer retention level is believed to be a significant contributor towards improvement in the overall firm performance. A glimpse on the existing researches on customer retention highlights that financial sector has been thoroughly investigated which leave a room for a detailed investigation on customer retention within the fast-food industry.

 

Customer retention is seen as an obligation by a customer to carry out business transactions with a particular firm on a regular basis (Hansemark&Albinsson2004). Molapo and Mukwada (2011) ascertained that business organizations are all out to foil attempts by customers to switch retailers and indirectly retain them. In addition, Erdis (2009) established that businesses direct their marketing efforts to please their current customers in order to retain them and foster long-term relationships with them. Customers will frequently patronize firms which meet their needs and hence, an enduring relationship will be fostered (Fill, 2005).

 

Farquhar (2004) claimed that retained customers increase firms’ profits because acquiring new customers is a costly affair. This is in line with the findings of Reichheld and Schefter (2000) which showed that firms that are able to raise customer retention by five per cent would be able to boost profits by 25% to 95%. In addition, the costs of acquiring new customers are five times more than those of retaining an existing customer for a firm. Thus, boosting customer retention will increase firm’s profits and performance by leaps and bounds (Sim, Mak & Jones, 2006).       

 

In line with Richard (2009), performance of business organizations incorporates three main zones of firm outcomes: financial performance (profits, return on assets, and return on investment); product market performance (sales, market shares); and shareholder return (total shareholder return and economic value added). In recent times, organizational performance has also been measured using non-financial measures such as customer satisfaction, social responsibility (corporate citizenship, community outreach) and employee stewardship (Herman & Renz, 2008); increased customer base and decreased number of complaints (Renz, 2008); and price satisfaction, meeting client’s needs, customer retention and product development (Lombard, 2009; Richard, 2009). 

 

Retention of customers is a prospective operational apparatus that eateries can utilize in advancing a strategic gain and endure in the ever-increasing competitive business environment thus enhancing their overall performance (Hull, 2002). The supporting argument on retaining customers is comparatively forthright. It is more economical to retain customers than to obtain new ones. The costs of acquiring customers to replace those who have been lost are high. This is because the expense of obtaining customers is met only in the initial stages of the commercial relationship (Dabholkar, 2000).

 Besides, longstanding consumers purchase in large quantity and quite frequently and, when motivated, might brood affirmative oral promotion for the institutions. In addition, lasting customers also consume slighter company’s time and are not so thoughtful to price variations (Healy, 2009). The outcomes pinpoint management prospect to secure more referrals in someone’s business, as it is frequently of superior quality and economical to acquire. Hence, it is understood that dropping customer defections by as little as five percent can double the profits (Healy, 2009). Base on these assertions, It is therefore imperative to examine the impact of customer retention on business performance in Crunchies fast food, Uyo-Akwa Ibom State.  

 

1.2     Statement of Problem

In the world of business, there are plenty of bridges to cross and battles to fight. The crowded market space has only become more crowded over the past few years making it harder for brands and easier for customers with the range of choices at their disposal. Brands are left to ask: How do we attract more customers? How do we make sure these new customers like us enough to come back again? How can we then guarantee them an experience that will motivate them to keep coming back? How much do we spend on marketing, there for? What about maintaining the existing customer base? All of this boils down to Customer Retention.

 

Service sector is therefore, one of the important segments for the global economic growth. Its global Gross Domestic Product (GDP) has been rapidly expanding and has accounted for about two thirds of the world’s trade (Lo et al. 2007). At present, knowledge cum labor-intensive service industries such as information and communication technology, financial, healthcare, entertainment, biotechnology and education are the world’s crucial fortune initiating industries (MITI, 2011). As such, the Nigerian economy has involved in a structural transformation from the manufacturing to services sector.

 

 

1.3     Objective of the Study

The general purpose of this study is to assess the impact of customer retention on business performance in Crunches Fast Food, Uyo-Akwa Ibom State. The specific objectives include:

1. To determine the factors that influences customers’ retention.

2. To examine the dimensions of customer retention.

3. To examine the relationship between customer retention and business profitability.

 

1.4      Research Questions

The following research questions are raised to aid the study.

1.     What are the factors influencing customer’s retention?

2.     What are the dimensions of customer Retention?

3.     To what extent does customer retention increase business organization’s profitability?