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Customer retention: Recipe for success in SaaS industries

A case study on a leading B2B SaaS provider

Written by S. Nabil

Paper category

Master Thesis

Subject

Business Administration>Marketing & Sales

Year

2018

Abstract

Thesis: Customer retention When discussing customer retention, different interpretations or concepts are introduced in order to identify, classify and determine what constitutes customer retention (Grönroos, 1990; Reichheld and Kenny, 1990; Buttle, 2001). Ahmad and Buttle (2001) concluded in their article that customer retention refers to customers not leaving or turning to other competitors. Traditionally, 4Ps marketing theory prices, products, promotions, and locations, also known as traditional marketing or classic marketing methods (Jerome, 1964) emphasized acquiring new customers rather than retaining them. However, the idea that customer retention is more profitable and brings more value to the business has developed (Chrstopher, Payne, and Ballantyne, 1991; Berry and Parasuraman, 1992; Peck et al., 1999) and is still very common in contemporary business literature ( Rahman and Massum, 2012). Dawkins and Reichheld (1990) first published the actual tangible impact of customer retention in the form of higher profitability. Although the benefits of customer retention vary depending on the industry concerned (Payne and Frow, 1999), the main idea is that the cost of acquiring customers is higher than the cost of retaining existing customers (Reichheld and Kenny, 1990; Gallo, 2014). However, due to recurring revenue, the longer the customer stays as a customer, the acquisition cost always decreases (ibid.). Therefore, the principle of reducing costs as income accumulates will promote more profits, that is, higher profitability. Even from a value-derived perspective, customer retention has been proven to provide companies with more long-term value than the initial acquisition (Vandermerwe, 1996). This value can be in the form of marketing and attracting new customers, and the promotion of beneficial partnerships may increase market share, etc. (Ibid.) For companies in the SaaS industry, the main revenue model is more similar to a subscription-based model than a transaction model (Ojala, 2013), and customer retention is therefore more and more important for the survival of the company. As customer retention promotes long-term profitability and lower initial costs (Dawkins and Reichheld, 1990; Buttle, 2001), its importance has become critical to existing companies. Considering the main revenue model used in the SaaS business, customer retention provides an opportunity to gain a key competitive advantage (Dawkins and Reichheld, 1990). Bloemer and Kasper (2014) found in their research that there is a direct link between customer satisfaction and whether customers are defective or left behind. Therefore, just as customer satisfaction promotes customer retention, customer dissatisfaction promotes customer churn (Bloemer and Kasper, 1994; Vera and Trujillo, 2017). 2.3 Customer journey mapping When seeking to increase customer retention, especially among dissatisfied customers, it is important to investigate what you already have to use, that is, existing customer journeys. From the customer's point of view, the customer journey is a holistic experience, from the first time the customer meets the supplier to after the customer purchases and uses the products/services provided (Lemon, 2016; Bern and Hermansson, 2017; Opanasenko, 2017). Therefore, in order to improve the customer experience throughout the customer journey, the actual content of the entire customer journey must first be determined. By mapping the customer journey, the Customer Journey Map (CJM) was created. According to Edelman et al. (2017), the importance of customer experience and customer journey has evolved to become the core of a company's competitive advantage. Although this paper will not adopt the same method, Schneider and Stickdorn (2011) mentioned in their book "This is Service Design Thinking" that the customer journey is a collection of various touch points, which are the overall customer experience. Influential activities or events. These touch points can be different in type, length of time, etc., and have different importance. In order to properly improve the customer experience, the importance of these touchpoints needs to be verified by the customer, just like in an interview, but the method should not be too structured, so as not to stifle the customer's mentality. Just like this, Lemon and Verhoef (2016) proposed that CJM can be divided into smaller but more comprehensive stages; pre-purchase, actual purchase, and post-purchase stages. In addition, these stages all exist in the inherent BM, but from the customer’s point of view (Norton and Pine II, 2013; Lemon, 2016; Weber, 2017), it provides the necessary tools to enhance the BM Way to get the customer experience. Even if the company’s BM goes far beyond the customer journey (Kaplan, 2012; Ropo, 2014; Opanasenko, 2017), the overall customer experience can be captured by investigating customer interactions throughout the BM (Howard and Sheth, 1969; Neslin et al., year 2006). Therefore, this article does not divide the customer journey into different stages of purchase, but focuses on the customer journey from the perspective of BM. By focusing on value creation, delivery and capture, because it is more related to inherent BM, this paper aims to capture the overall customer journey and customer-specific business processes. It is within CJM that there are key touch points that need to be identified and focused to optimize the customer experience and ultimately increase customer retention (Stickdorn and Schneider, 2011; Lemon, 2016; Rosenbaum, Otalora, and RamÎrez, 2016; Edelman and Singer , 2017; Opana Senko, 2017). Read Less