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Customer Retention written with chalk on tarmac over colorful graph and rising arrow, business marketing and creativity concept

Many challenges experienced by SMEs in Asia and globally can be traced to inadequate sales and competitive weaknesses. Unethical competition, changing customers’ needs, and poor location pose challenges to SMEs indicating that the success of any business may be determined by loyal customers who develop a preference for an individual business. Establishing loyalty to an SME is therefore a key strategy for achieving desired business goals.

Well established research has shown that SME customer retention relies on five key influencing factors;

  • customer satisfaction
  • switching cost
  • customer loyalty
  • perception on pricing
  • customer service

 

Customer satisfaction can be defined as a sense of comfort and attachment that results from meeting customers’ expectations and also as a pleasant experience that creates an emotional link between a customer and the firm. The level of satisfaction differs across individual customers despite their experience with similar service providers and customers with a greater satisfaction level frequently buy in larger volume besides acquiring new products from the same provider. Satisfied customers also spread the word about their favorable experiences among their contacts making word of mouth a powerful informal marketing tool. In a recent survey across Southeast Asia, 88% of consumers placed the highest level of trust in word-of-mouth recommendations from people they know, with Filipino consumers leading the way at 91%, Vietnamese and Indonesian consumers at 89%, followed by Malaysians, Singaporeans at 83% and Thais at 82%. 

Switching providers isn’t a death knell for an SME but what is more important is that in a recent survey nearly 20% of respondents said their feelings about brand loyalty can be changed completely. While some brands are staying up to date with their loyalty programme, many are not, and those changes to customer loyalty can be costly. Some experts believe the costs to brands from bad loyalty programmes can reach into billions. “Every consumer has a natural instinct about what makes them ‘stick’ to a brand. The traditional ‘low price’ and ‘reliable service’ mechanics are no longer as effective at driving loyalty,” says Robert Wollan, Senior Managing Director of Advanced Customer Strategy at Accenture Strategy. “With 66 percent of U.S. consumers spending more with the brands they love, organizations that stick to traditional approaches and don’t explore the new drivers influencing loyalty risk draining profitability and pushing customers away, even when they have the best intentions or are following their historical playbook. It’s time for organizations to take a fresh look at loyalty,” he said. Other interesting takeaways from this recent Accenture report include:

  • 59% of consumers ‘feel loyal’ to brands offering them small rewards – like gift cards and personalized discounts – because of their loyalty
  • 41% ‘are loyal’ to brands that personalize their programme offerings
  • 44% ‘are loyal’ to brands that ask them to help design/create products
  • 23% ‘are loyal’ to brands that include celebrity endorsements

Customers become loyal to an SME if they have a positive feeling or perception about the business. Starbucks is an obvious example, if you have ever wondered around an unknown city in Asia and felt like a cup of coffee, you may find yourself gravitating towards Starbucks because you know what you will get there, even if you are paying more than the local price.

The logic behind obtaining loyal customers is simple. It can cost up to five times more to obtain a new customer than it does to keep an existing customer. A business that retains 5% of its customers can increase its profits by up to 100%. ‘Loyal customers know the organisation well, do not need much information and often recommend the organisation to others,’ according to Philip Kotler, the father of modern marketing.

Customers are loyal to an SME for different reasons and six types of customer loyalty can be identified;

  • Monopoly loyalty – customers are loyal to a business because they have no alternative available
  • Inertia loyalty – customers are loyal without looking for alternatives
  • Convenience loyalty – customers are loyal to a business due to its convenient location
  • Incentivised loyalty – customers are loyal due to incentives gained from a loyalty programme
  • Price loyalty – customers are loyal as a result of low prices
  • Emotional loyalty – customers are influenced by factors such as brand

For a smart SME owner, you must decide which one or combination of these types to target and then implement the right business strategies to maximize the benefits. When you have defined this you can implement these strategies with goals and then measure the results. There are also many yardsticks that can be used to measure loyalty, including:

  • Total number of purchase occasions during a year
  • Number of days passed between purchases
  • Amount of money spent by customers during the financial year
  • Number of items bought per shopping trip
  • The extent to which the customer increased his or her purchasing activity compared to last year.

Pricing tactics employed in acquiring customers also influence customer’s retention and lifetime value with the firm. Customers’ price awareness such as personal awareness of price fairness or ‘market rates’ among service providers tends to be a central determinant of post-purchase satisfaction and hence, their repurchase intention. Everyone loves a bargain and most people don’t like to feel that they overpaid unless, such as in some instances in the China market, purchasing decisions are based on ‘Face’ and consumers will buy the highest priced product to impress their friends, family or colleagues or they are buying for a client from whom they expect a favour in return.

Customer service is the process of delivering a product to your clients before, during and after a purchase. It is a key driver for SME’s in retaining customers, especially when your customers are seconds away from sharing their experience online. HomeAway, a vacation rental company, which entered the market before AirBnB, was not nearly as well-known and reputable. As AirBnB entered the market in 2008 with a strong Social Marketing campaign, it pinched a lot of customers from HomeAway, offering them more easy-to-manage rentals and profiles. In recent years, this trend has reversed with online renters returning to HomeAway when AirBnB started lagging behind in its customer service. AirBnB suffered from negative publicity of not resolving client issues nor providing adequate explanation. HomeAway then seized the opportunity to revamp its customer service; as you set up a profile with the company you get a follow-up call from a representative who offers a personal mobile number with 24 hour availability.

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