Understanding Customer Value, Retention, and Loyalty

Posted on Feb 28, 2025 in Business Administration and Management (BAM)

Customer Value Analysis (CVA)

What do customers want from our organization? What aspects of our products or services do customers value? A total quality organization must know the answers to these questions. Organizations that don’t know what their customers value risk wasting valuable resources and improving the wrong things. The process used to determine what is important to customers is called Customer Value Analysis (CVA).

The CVA Process

The CVA process consists of the following five steps:

  1. Determine what attributes customers value most.
  2. Rate the relative importance of the attributes.
  3. Assess your organization’s performance relative to the prioritized list of attributes.
  4. Ask customers to rate all attributes of your product or service against the same attributes of competitors.
  5. Repeat the process periodically.

Customer Retention Strategies

  • Be Proactive – Get Ahead of Customer Complaints
    • Surveys are not enough; customer complaints should be investigated.
    • Dissatisfied customers generally do not complain.
    • Use customer complaints to supplement customer satisfaction surveys.
    • A focus group approach can be useful.
    • An input group approach could also be explored.
  • Collect both registered and unregistered complaints.
  1. Focus Group
  2. Follow-up Interviews
  3. Collect informal feedback from sales people (train sales people about the products/processes that a firm uses to manufacture a product).

Recognizing the Customer-Driven Organization

  • A customer-driven organization can be recognized by the following characteristics:
  • Promptly follows through on all promises.
  • Can be trusted.
  • Has credibility.
  • Attends to even the smallest details.
  • Responsiveness.
  • In addition to these characteristics, customer-driven organizations exemplify the following management characteristics:
  • Effective communication with customers and their personnel concerning customer needs.
  • Use of customer-specific metrics.
  • Systematic use of customer feedback.
  • Customer-focused organizational structure.

Customer Loyalty vs. Customer Profitability

  • Customers are labeled according to where they fall in the customer loyalty/profitability matrix.
  • High profitability/short-term customers are called butterflies.
  • High-profitability/long-term customers are called true friends.
  • Low-profitability/short-term customers are called strangers.
  • Low-profitability/long-term customers are called barnacles (an animal found in deep sea/staunch follower).
  • The strategies recommended for each of these customer types follow.
  1. Butterflies:
    • Butterflies are highly profitable customers, but they don’t stay around long.
    • Consequently, the following strategies are recommended for dealing with butterflies:
    • Aim to achieve transactional satisfaction rather than long-term loyalty.
    • Work the accounts only as long as they are active—don’t waste time chasing a rainbow.
    • Make wise decisions about the optimum time to break off the relationship.
  1. True Friends:
    • True friends are highly profitable, and they are loyal.
    • Consequently, the following strategies are recommended for dealing with true friends:
    • Communicate consistently, but don’t overdo it.
    • Build both attitudinal loyalty and behavioral loyalty.
    • Nurture, defend, and partner with them to create customer delight.
  1. Strangers:
    • Strangers provide only low profitability and are short-term customers. Consequently, the following strategies are recommended for dealing with strangers:
    • Make the best profit possible on every individual transaction.
    • Make no investment in the relationship.
  1. Barnacles:
    • Barnacles provide only low profitability but are long-term customers.
    • Consequently, the following strategies are recommended for dealing with barnacles:
    • Begin by measuring their buying potential and how much of it the organization gets.
    • If they have buying potential, try to increase the share of their business the organization gets by up-selling and cross-selling.
    • If they don’t have buying potential, impose strict cost controls on their account.