Fact and Fallacy in Retention Marketing

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Abstract:

We review the claims that have been made to justify an emphasis on customer retention in marketing. First, we show that, in many consumer markets, the available evidence gives little support to the argument that long-tenure customers are of more value than short-tenure customers. Second, we argue that it may be difficult to influence long-tenure customers profitably. Third, we consider the evidence that increases in customer satisfaction lead to increases in profit for a firm. The connection between satisfaction and profit has been explained as the result of increased customer retention but we find little evidence to support this claim. A counter view is that increases in customer satisfaction affect profit because they raise recommendation and, as a result, customer acquisition. For these reasons, we suggest that, in many categories, new customers may have been undervalued and that more attention should be given to customer acquisition

Document Type: Research Article

DOI: http://dx.doi.org/10.1362/026725706776022245

Publication date: February 1, 2006

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