Managing Customer Retention

A framework for customer relationship management
Russell S Winer.
California Management Review. Berkeley:
Summer 2001. Vol. 43, Iss. 4; pg. 89, 19 pgs

The impetus for this interest in CRM came from Reichheld, who demonstrated dramatic increase in profits from small increases in customer retention rates.4 His studies showed that as little as a 5% increase in retention had impacts as high as 95% on the net present value delivered by customers. Other studies done by consultants such as McKinsey have shown that repeat customers generate over twice as much gross income as new customers. The considerable improvements in technology and innovation in CRM-related products have made it much easier to deliver on the promise of greater profitability from reduced customer "churn."

For example, a 1999 McKinsey study examined the simulated impact of improvements in a number of customer-based metrics on the market value of Internet companies. The metrics are divided into three categories: customer attraction, customer conversion, and customer retention. It is seen that the greatest leverage comes from investments in retention. If revenues from repeat customers, the percentage of customers who repeat purchase, and the customer chum rate each improves by 10%, the company value was found to increase (theoretically) by 5.8%, 9.5%, and 6.7% respectively.

One way that some companies are developing an improved focus on CRM is through the establishment or consideration of splitting the marketing manager job into two parts: one for acquisition and one for retention.

A possible marketing organizational structure is that the person overseeing the company's marketing activities, the VP-Marketing, has both product management and the CCO as direct reports.

Russell S. Winer is the J. Gary Shansby Professor of Marketing Strategy and the Chair of the marketing group at the Haas School of Business, University of California at Berkeley. He is the author of three books, Marketing Management, Analysis for Marketing Planning, and Product Management, and he has authored over 50 papers in marketing on a variety of topics. He is a past editor of the Journal of Marketing Research, the current co-editor of the Journal of Interactive Marketing, and is on the editorial boards of the Journal of Marketing, the Journal of Consumer Research, and the California Management Review.