Impact Of Customer Retention On Business Performance

Project and Seminar Material for Marketing

Impact Of Customer Retention On Business Performance


Abstract


As customers are the backbone of any business, firms without customers would not be able to sustain their performance. This is because such firms are believed to have no revenues, no profits and therefore no market value. Accordingly, managing customers is deemed to be very crucial business agenda in which the key focus has been switched in recent years from attracting new customers to preserving existing ones. Both practitioners and scholars have discovered that it is much easier and cheaper to retain the exiting customers than investing on the potential customers.

A decent customer retention level is believed to be a significant contributor towards improvement in the overall firm performance. Accordingly, this study explores the customer retention practices adopted by fast-food firms in general and Favourites fast-food in particular while examining the factors that retain customers and the subsequent impact of customer retention practices on business performance. A survey of forty (40) customers of Favourites Fast-Food Asaba showed that customer service and quality of product have significant influence on customer retention which inturn has direct impact on business performance. Hence, it is advisable for fast-food businesses to pursue an effective and efficient customer service and ensure high and consistent quality of their product.


Chapter One


Introduction

1.1 Background of the Study

As customers are the backbone of any business, firms without customers would not be able to sustain their performance. This is because such firms are believed to have no revenues, no profits and therefore no market value. Accordingly, managing customers is deemed to be very crucial business agenda in which the key focus has been switched in recent years from attracting new customers to preserving existing ones. Both practitioners and scholars have discovered that it is much easier and cheaper to retain the exiting customers than investing on the potential customers. A decent customer retention level is believed to be a significant contributor towards improvement in the overall firm performance. A glimpse on the existing researches on customer retention highlights that financial sector has been thoroughly investigated which leave a room for a detailed investigation on customer retention within the fast-food industry.

Customer retention is seen as an obligation by a customer to carry out business transactions with a particular firm on a regular basis (Hansemark & Albinsson, 2004). In addition, Molapo and Mukwada (2011) have ascertained that firms are all out to foil attempts by customers to switch retailers and indirectly retain them. also, Erdis (2009) has established that firms direct their marketing efforts to please their current customers in order to retain them and foster long-term relationships with them. Customers will frequently patronise firms which meets their needs and hence, an enduring relationship will be fostered (Fill, 2005).

Farquhar (2004) claimed that retained customers increase firms’ profits because acquiring new customers are a costly affair. This is in line with the findings of Reichheld and Schefter (2000) which ascertained that firms that are able to raise customer retention by five per cent would be able to boost profits by 25 – 95 per cent. In addition, the costs of acquiring new customers are five times more than retaining an existing customer for a firm (Tu, Lin, & Chang, 2011). Thus, boosting customer retention will increase firm’s profits and performance by leaps and bounds (Sim, Mak & Jones, 2008).


1.2 Statement of Research Problem

Customer retention is not given the attention due to it, by most firms especially the fast-food industry. It has been found that customer retention has more impact on profits than market share, economies of scale and other variables that are considered to provide competitive advantage to a firm. In fact, it has been found that companies, which reduced customer defections by 5 per cent, could boost profits from 25 per cent to 85 per cent.

Traditionally, marketing management has relied on permutations and combinations of the marketing mix elements (product, price, place and promotion) to achieve market dominance through enhanced market share by acquiring new customers. This approach considers the formation of homogenous segments of relatively heterogeneous customers. It does not take into account the history of association between the customer and the seller and hence does not reveal the actual buying behaviour of the customer. Aggressive branding and promotions are other tactics used by sellers adopting the traditional marketing approach. But brands with the highest market share are not always the most profitable. In some cases, they may even be unprofitable.

The relationship marketing approach on the other hand, focuses on customer retention, encouraging increased spending and on long-term relationships with customers. Gronroos, a research scholar, has stated – ‘Marketing is to establish, maintain and enhance relationships with customers and other parties at a profit so that the objectives of the parties involved are met. This is done by a mutual exchange and fulfillment of promises’. Customer retention should thus become a part of the strategic marketing planning process of any firm.
It is on this note that the researcher investigates the impact of customer retention on business performance.


1.3 Objectives of the Study

The overall objective of the research study is to examine the impact of customer retention on business performance. Other specific objectives include:

  1. To determine the factors that influences customers retention
  2. To examine the dimensions of customer retention
  3. To examine the relationship between customer retention and business profitability

1.4 Research Hypotheses

For the successful completion of the study, the following research hypotheses were formulated by the researcher;

  1. H0: there are no factors that influences customers retention
    H1: there are factors that influences customers retention
  2. H02: there is no relationship between customer retention and business profitability.
    H2: there is relationship between customer retention and business profitability

1.5 Significance of the Study

The study shall give clear insight on impact of customer retention on business performance. The study will be benefited to customers and the organizations. The study will serve as reference to other researchers.


1.6 Scope and Limitation of the Study

The scope of the study covers impact of customer retention on business performance. The researcher encounters some constrain which limited the scope of the study;

a) Availability of Research Material:

The research material available to the researcher is insufficient, thereby limiting the study

b) Time:

The time frame allocated to the study does not enhance wider coverage as the researcher has to combine other academic activities and examinations with the study.

c) Organizational Privacy:

Limited Access to the selected auditing firm makes it difficult to get all the necessary and required information concerning the activities.


1.7 Definition of Terms

Customer:

In sales, commerce and economics, a customer is the recipient of a good, service, product or an idea – obtained from a seller, vendor, or supplier via a financial transaction or exchange for money or some other valuable consideration.

Customer Retention:

Customer retention refers to the ability of a company or product to retain its customers over some specified period.

Business Performance:

Business performance management is a set of performance management and analytic processes that enables the management of an organization’s performance to achieve one or more pre-selected goals


1.8 Organization of the Study

This research work is organized in five chapters, for easy understanding, as follows.

  1. Chapter one is concern with the introduction, which consist of the (overview, of the study), historical background, statement of problem, objectives of the study, research hypotheses, significance of the study, scope and limitation of the study, definition of terms and historical background of the study.
  2. Chapter two highlights the theoretical framework on which the study is based, thus the review of related literature.
  3. Chapter three deals on the research design and methodology adopted in the study.
  4. Chapter four concentrate on the data collection and analysis and presentation of finding.
  5. Chapter five gives summary, conclusion, and recommendations made of the study

Chapter Five


Summary, Conclusion and Recommendation

5.1 Introduction

It is important to ascertain that the objective of this study was to ascertain impact of customer retention on business performance. In the preceding chapter, the relevant data collected for this study were presented, critically analyzed and appropriate interpretation given. In this chapter, certain recommendations made which in the opinion of the researcher will be of benefits in addressing the challenges of customer retention on business performance


5.2 Summary

This study was on impact of customer retention on business performance. Three objectives were raised which included:To determine the factors that influences customers retention, to examine the dimensions of customer retention, to examine the relationship between customer retention and business profitability.In line with these objectives, two research hypotheses were formulated and two null hypotheses were posited. The total population for the study is 200 staffof selected fast food in Asaba, Deltat state. The researcher used questionnaires as the instrument for the data collection. Descriptive Survey research design was adopted for this study. A total of 133 respondents made of human resource managers, managers, cooksand junior staff were used for the study. The data collected were presented in tables and analyzed using simple percentages and frequencies


5.3 Conclusion

Customer retention practice is very vital for firms to move beyond satisfying both existing and new customers where the practice is proved to be an important tool to improve firm’s performance particularly from their non-financial aspects. Hence, the practice should become a compulsory management tool for retailers to sustain in the competitive retailing sector. The findings of this study alongside the implications given are expected to enlighten the practices of customer retention within selected fast food in Asaba in Delta state


5.4 Recommendation

In line with this study, the researcher hereby recommended the following: Organizations should embrace and adopt the marketing concept that allows for being more effective than competitors in creating, delivering, and communicating superior customer value to their chosen target markets


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