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Customer Retention Meaning and Factors Affecting It

Last updated on April 14, 2023

What is Customer Retention Meaning?

It is the ability of a company’s products or services to keep customers for repeat purchases. Factors affecting customer retention can be internal and external. Internal factors are commitment, customer trust, and customer satisfaction. External factors are like switching barriers.

Factors Affecting Customer Retention

1. Customer satisfaction

Where customer satisfaction is high, customer retention is also high. The rate of customer retention decrease with a decrease in customer satisfaction. Thus, dissatisfied customers will imply a low customer retention rate for a company.

Any business must recognize the benefits of customer satisfaction. The implication of customer satisfaction is experienced right from the inception of a business idea to the decline stage in the business life cycle.

To enhance customer satisfaction, there is a need to consider all those factors that constitute customer satisfaction. These factors include but are not limited to the quality of goods or services offered by a company or business, the perceived value of a brand, and corporate image, among others.

Customer satisfaction determines customer retention, depending on the level of satisfaction. Customers delighted by their purchase will consider the same brand in future repeat purchases or for referral purposes. A delighted customer has their perceived value exceeded by what they got from their purchase. Thus, they emotionally feel that a purchase has more value for money.

In the case of a satisfied customer, a purchase has met perceived value. Thus, they will return to buy from a company since a purchase met their perceived value for money and have trust in a brand. Satisfied customers are thus retained not just in the short run but in the long run.

The third level of customer satisfaction is the dissatisfied customer. Customers at this level experienced low value for their money from a purchase. Thus, they defect in search of better options and are open to trying other brands that can meet or exceed the value for the money they pay.

2. Customer trust

If customer trust is high, the retention rate is also high. However, if the customer trust is shaky, the customer retention rate for a company becomes uncertain and low.

Customer trust triggers their first and recurring purchase, contributing to customer loyalty if satisfied. When a customer develops loyalty to a brand, it’s interpreted as customer retention to a company.

Customer trust is what determines whether or not they will make an actual purchase or not. Customer trust implies that they believe a brand will satisfy their needs.

Furthermore, customer trust implies they are confident in getting customer support services when needed. It is also this customer trust that customers rely upon when looking for information from marketers on how well a brand is suited to a customer’s demand.

Without customer trust, a product/service would not sell. Only a few potential customers would be willing to buy a brand they know is faulty.

Naturally, customers are unwilling to buy from a company that never responds to customer inquiries, complaints, etc. Customer trust is considered an essential aspect of customer relationship management. It differs between a first-time customer and a returning customer.

3. Commitment

A business or company that enhances customer satisfaction has a higher retention rate. On the other hand, a less committed company to enhancing customer satisfaction will have a lower customer retention rate.

Commitment comes in many ways and forms. For instance, commitment could be followed up after purchase to examine challenges a customer could have faced and how satisfying a purchase was. Commitment could also be in terms of quality control to ensure the best quality of the final product.

4. Switching barriers

The favorability of switching factors dictates the retention of the customer. If the switching factors are unfavorable to customers, they stick with a brand. For instance, if the switching costs are high, consumers stick to their current brand.

If switching to another brand is more viable, the retention rate for a company becomes low. For instance, if the switching costs are low, consumers find it easy to switch to substitutes.

It is the favorability of these factors that makes customers complain and yet buy the same brand over and over again. At times, the favorability of these factors results in some satisfied customers leaving to try other brands.

Do you wonder why customers complain and yet consume the same brand they are complaining about quite so often?

In other cases, you ask why new customers still buy a product they know very well is likely to frustrate them. For instance, why do people still buy expensive ‘unreliable’ brands? The answer to this, among many questions, is the external environment like switching barriers.

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