Impact of Customer Retention on Business

Context Description

In today’s market, organizations are experiencing stiff competition from their rivals which makes customer retention a problem. As a concerned researcher and customer, I noticed the major business operational problem that needs an urgent solution. This report targets business owners as the audience because they need to fix the customer retention problem for better operations. The purpose of this report is to analyze customer retention as an issue that affects the productivity of a company. By reporting the various causes of the problem and suggesting the solution, businesses will be in a better position to create healthy and long-lasting relationships with customers.

Customer Retention

Customer retention is the ability of an organization to create a positive relationship with a customer and make them regular buyers. Most businesses fail to retain customers because they focus on transactions instead of relationships (Simanjuntak et al. 2020). The existing market competition in various industries makes sellers unable to prevent their customers from buying from business competitors. Consequently, the business runs on low operations in terms of sales and revenues. Addressing the customer retention issue helps the firms to earn customer satisfaction and make them repetitive buyers (Simanjuntak et al. 2020). The businesses also enjoy maximum benefits attained in form of profits due to increased sales. This report provides strategies in which businesses can retain customers for more profits. Customer retention helps the business to offer and get extra value from its customer base. Low customer retention is caused by a lack of satisfaction amongst customers and can be solved by meeting customers’ needs.

Problem Description

Retention of customers is a primary determinant of the success or failure of a business. Organizations with a low level of loyal customers also have weak brand loyalty. A low level of customer satisfaction is the main cause of low retention because people buy where their needs are met. Businesses that focus on customer needs often deliver customer satisfaction in their valued products and services. All profit-making businesses are affected by the issue of customer retention. The quality of products and services, perceived product consumption value, and customer satisfaction are major determinants of customer retention. Solving this problem does not only guarantee more profits but also success for newly introduced products for the business.

Problem Analysis

Customer retention is differently defined by various experts depending on their understanding of customer loyalty. However, the most adequate definition of customer retention is the actions of an organization that increases customer base and keep them loyal to the brand (Al-Gharaibaha, 2020). How an organization deals with the customer during the transactional process and handling their complaints is crucial to the business reputation. A business’s focus is mostly determined by its lifecycle in the industry. A newly started business needs to be more concerned about maintaining customers than an already established business. Al-Gharaibaha (2020) mention that businesses that sell high-value items have higher customer retention. Therefore, the value of the products and services sold is important for earning customer loyalty.

Factors Causing Low Customer Retention

Unsatisfied Customers

Low Quality

A company with unsatisfied customers has a low level of customer retention. Customer satisfaction, like employee satisfaction, is key to a profitable business. Customers are happy when they purchase products that meet their needs. Many factors affect customer satisfaction including price, quality, care, and brand image (Simanjuntak et al. 2020). The price tagged to products should match their value for customer satisfaction. Over-priced products with low value keep customers away from buying them again. The prices for products and services must also match the quality offered.

The value of a product is dependent on its quality among other things. The quality of a service or product offers corresponding value to the customer. Therefore, low-quality products have low value and cannot attract customers to buy again from the business. Product quality is a primary competitive advantage for businesses hence if the quality is low, the company lacks the power to retain customers. A study by Simanjuntak et al. (2020) provides that there is a critical positive effect between the quality of services and products and customer retention. Businesses that pay little focus on the relationship of these two concepts have a low level of customer base.

Poor Customer Service and Reputation

Poor customer service is another problem that causes low customer retention. Businesses that do not respond or poorly handle customer complaints lose their customer base. Customers expect their needs to be handled so when they receive less service than they paid for, they never come back (Simanjuntak et al. 2020). The perceived value of a service is closely related to the brand reputation. A brand with scandals has a poor public image and most customers tend to distance themselves from it. A brand’s name shapes or destroys the value of its products and services. Customers are also concerned with the ethical reputation of a brand’s behaviors and operations. Companies involved in unethical deeds can lose their customer base or fail to attract new ones.

Perceived Consumption Value

Perceived consumption value for goods and services strongly drives the behavior and attitudes of the customers. It is defined as the examination of an item’s quality and its expected performance over a particular cost (Al-Gharaibaha, 2020). The effect of perceived consumption is closely related to how the customers behave after using a product. If a customer gets low perceived consumption value, they are likely to look for alternative brands to meet the same needs.


Maximize Customer Satisfaction

Offer High-Quality Goods and Services

Customer satisfaction is an apparent problem causing low customer retention. Maximizing customer satisfaction in terms of quality, customer service, brand reputation, and perceived consumption value leads to a high customer base. Offering high-quality goods and services means giving the best quality that meets customer needs (Sabbeh, 2018). A specific way of doing this is by investigating customers’ tastes and producing more of what they need. There are many ways of investigating the preferences of customers, for example, observing items mostly purchased by the customers and offering the same and use of chatbots to monitor customer preferences in online businesses (Sabbeh, 2018). In such cases, providing the customers’ preferences may cost less for the businesses compared to the earned returns.

Good Customer Service

Good customer service is not limited to politely talking to the customers but also responding to their needs. Customers make a complaint about a product or service if they are not satisfied (Mahmoud et al., 2018). The right procedure to respond to customer complaints is the use of polite language and taking immediate action to reverse the negative effect. Offering a positive customer experience should be a business aim among others. For example, if a customer bought a bottle of yogurt and upon reaching home, she discovers that the seal is broken and raises a complaint to the seller, the best action is to replace the yogurt. Such simple actions may retain a customer and if not handled well, the customer may never return. Online purchases may pose major problems because complaints are also made through online platforms (Sabbeh, 2018). However, offering an immediate response and starting the investigation about the problem is critical. Furthermore, it is important to notify the customer about the response process and the level of brand’s remorse for the mistake.

Maintain Good Brand Reputation

It does not matter how the name of the brand is, a negative reputation can bring the entire business down. The productivity of a business is closely related to its image, based on what people say (Mahmoud et al., 2018). Protecting what people say about a business means operating on an ethical basis. Businesses involved in unethical practices such as fraud are run on scandalous operations. Reputable customers, whether loyal or not do not wish to be associated with scandalous businesses. Therefore, avoiding actions that may result in a damaged image is a healthy way of maintaining good relationships with customers.

Excellent Perceived Consumption Value

Ensuring that customers enjoy the right value for the purchased products is key to retaining them. The right way to ensure value is to match the quality of the product or service with the cost and customer need business (Al-Gharaibah, 2020). The seller must ensure that the item sold to the customer sufficiently offers the expected service. For example, if a customer purchases air fragrance, the freshener is of the highest quality and its price is high but upon spraying the house, the customer realizes that the fragrance has no smell. In such cases, the customer does not get the value he or she expected when purchasing the fragrance. To avoid such situations, the seller should ensure the quality, cost, and customer perception are met by a sold product or service.

Other Strategies of Attaining Customer Satisfaction

Offering Discounts

Offering regular discounts especially on highly-priced items is a way to keep customers. Conditional discounts increase the level of sales and general revenue for the business (Al-Gharaibah, 2020). First-time buyers’ discounts may look attractive but may not contribute to customer retention. Monthly purchase discounts or buys several and gets one free type of discounts to maintain customers. For example, a soap seller selling each soap at $1 may create an offer to sell four soaps at $4.5 and give one freely. The seller will only be giving up the profit of one soap while increasing the profits of the other four. Such an offer going for two to three days will ensure increased sales and more profits.

Sending Engaging Emails to Customers

For online businesses, constant interaction with the customers contributes to their retention. Sending emails about available promotions, new products and restocking of existing products is important for customers (Sabbeh, 2018). Businesses can also influence customer attitudes by giving more hacks about purchased items. Advice about using or maintaining a product could also increase customer satisfaction. For example, if a customer buys a hair extension, the seller can email content about suitable oil and maintenance techniques for the extension. Such activities might be involved for a business firm but are some of the ways to earn customer love towards a brand. Customers are more likely to buy from sellers that care about their well-being than those who only focus on making sales.


Al-Gharaibah, O. (2020). Customer retention in five-star hotels in Jordan: The mediating role of hotel perceived value. Management Science Letters, 10(16), 3949-3956. Web.

Mahmoud, M. A., Hinson, R. E., & Adika, M. K. (2018). The effect of trust, commitment, and conflict handling on customer retention: The mediating role of customer satisfaction. Journal of Relationship Marketing, 17(4), 257-276. Web.

Sabbeh, S. F. (2018). Machine-learning techniques for customer retention: A comparative study. International Journal of Advanced Computer Science and Applications, 9(2). 1-9. Web.

Simanjuntak, M., Putri, N. E., Yuliati, L. N., & Sabri, M. F. (2020). Enhancing customer retention using customer relationship management approach in car loan business. Cogent Business & Management, 7(1), 173-200. Web.

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