Royal Melbourne Institute of Technology University RMIT International University Viet Nam

Client Management - COMM 2384

Lecturer: Melanie Casul Student: Nguyen Thi Bich Huyen ID: s3210216 Group: 2

COMM 2384 2 Client Management - COMM 2384 Topic 1: Client acquisition is a higher priority than client retention. Discuss both sides of this statement and state which is more important in your view and why. In your discussion, make reference to a minimum of three (3) strategies discussed in any of the lectures, assigned readings, group reports presented in this course and your wider research.

I.

Introduction A successful business could be evaluated with the quantity of clients and the strategy it maintains effectively these relationships. With the increase in society demanded, day by day there are countless companies with variety of sizes which pop up as fast as mushroom growing after a rain. Imperceptibly, that situation has placed pressures on business activities, especially on client management departments when targeting the right customers to maximize companys profit. Thus, the opinion Client acquisition is a higher priority than client retention becomes a controversial topic. This paper will emphasize the important role of client retention over client acquisition in an organization as well as provide reasons and also strategies in following paragraphs.

II.

Overview of the terms Client acquisition and Client retention According to Lewis (2006), client acquisition could be defined as potential customers that the business focuses to measure their potential values and to allocate acquired resources with greater long-term value. On the contrary, client retention focuses on obtaining information and allocating resources to manage relationship with existing customers on the basic of their long-term value (Reinartz et al. 2004).

III.

Discussion on Client acquisition is a higher priority than client retention 1. General view on both sides of Client acquisition and Client retention Client acquisition and client retention are not mutually exclusive because a business might concentrate on one or both terms depending on companies visions and characteristics such as products, services or business goals. For clients acquisition, Bolton & Tarasi (n.d.) suggest that it is the first step in building a customer base. Client acquisition is inadequate but it is obviously true

COMM 2384 3 Client Management - COMM 2384 for new establishment firm due to lots of risks. Additionally, Mittal & Kamakura (2001) state customers with different characteristics have different satisfaction thresholds and different probabilities of repurchase. Hence, client acquisition carries a lot of risk such as waste time and money to research what do they want, need and aspire. These elements will directly diminish to companys revenue. In sum, client retention is often easier and cheaper than client acquisition. According to the data of CRMGuru the worlds best community for business leaders, releases that 80% business leader believes in loyalty which means their client retentions are crucial to business success (Thompson 2005). The data also shows the different respondents in investment between client acquisition (40%) and client retention (22%). In the other word, catching up a new customer is very hard but if it not fit for organizations value or future profitability, it will waste the amount of companys resources such as financial, time and people. Thus, the expense for client acquisition is double amount and it directly diminishes to business profit. 2. Methods used to analysis clients strategies. Boston Consulting Group matrix (BCG matrix) Every business needs to build effective and strong relationships with its customers in order to enrich its own business potential. Thus, before making any decision, a thoughtful analysis to select a proper maintain strategy and for long-term

development
Figure 1. Adapted from: Magdy 2010

agency-client relationship is highly

required a serious attention. BCG matrix is a portfolio planning method that evaluates a companys strategic business units in terms of their business growth rate and relative share with four categories including starts, cash cow, question mark and dog (Kotler et al 2008). In case of client-agency relationship, the matrix is used to evaluate an agencys

COMM 2384 4 Client Management - COMM 2384 strategic client units in term of its client growth rate and relative share with the same four categories. The categories that beat the target profit easily is cash cow with low client growth but high client share which is usually suitable to target client retention (Bolton & Tarasi n.d.). The other categories including star and question mark could be invested for client retention but it does not strong enough because it is just right in case of special characteristic of company. Iceberg strategy The strategy supports the idea that measures and enhances the profitability of customer relationship through a better understanding of customers behavior (Icebergstrategy 2010). For client

retention, due to long-term working together the agency and client might have better
Figure 2. Adapted from: Haines 2005

mutual

understandings cultures, goals

about or

organizational

behaviors than in case of client acquisition which requires much time and even money to get good knowledge about them to serve their needs. In the other word, continue maintaining and developing current clients could save time and finance as the agency somehow could reach some levels of the invisible parts of the iceberg. Hence, client retention seems a safety way to limit the expense and risk. Risk/Revenue matrix When determining client retention, the major and final aim is that the company also needs to decide which customers are the most valuable or most costly to lose for. Hughes (cited in Thompson 2005) suggests using a Risk/Revenue matrix to figure out which customers needs to care mostly. In the table, the priority A and B are the most important regardless of lifetime value, those who are client most likely stay with you and the priority C vice versa. Hughes states that the priority C could be the loyal

COMM 2384 5 Client Management - COMM 2384 client that is never going to leave you; so in this case, the business does not need spending much of money on to build healthier relationship.
Probability of leaving soon

High
LifeTime Value

Medium Priority B Priority B Priority C

Low Priority C Priority C Priority C

High Medium Low

Priority A Priority B Priority C

Figure 3. Adapted from: Hughes n.d.

IV.

Conclusion Different customers provide different revenue as well as require variety expenses on to the organization. To maximize profitability, it is essential to establish the right target clients which divided into two main types including client retention and client acquisition. By the utilization of three strategies: BBG, Iceberg, and Risk/Revenue matrix, although clients acquisition is the first step in building a customer base, it maintains a lot of cost and risks. Thus, client retention is the best choice for the agency to earn profits and strengthen long-term companys development.

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COMM 2384 6 Client Management - COMM 2384 V. References Bolton, R N & Tarasi, C O n.d., Managing customer relationship, Marketing Science, pp. 3-31. Haines, S G 2005, The Iceberg theory of change, image, Hainescentre, viewed 10 May 2011, <[Link] Gupta, S & Lehmann D R 2005, Managing customer as investment the strategic value of customer in the long run, Pearson Education, USA. Hughes, M n.d., Risk/Revenue Matrix, image, The customer Loyalty Solution, viewed 12 May 2011, <[Link] Icebergstrategy 2010, homepage, Icebergstrategy, viewed 12 May 2011, <[Link] Kotler, P, Armstrong, G, And, S H, Leong, S M, Tan, C T & Hon-Ming, O Y 2008, Principle of marketing a global perspective, 12th edn, Pearson/Prentice Hall, New York. Lewis, M 2006, The effects of shipping fees on customer acquisition, customer retention, and purchase quantities, Journal of Retailing, vol 82, issue 1, pp. 1323. Magdy, M 2010, BCG Matrix, image, How to be a marketer, 24 March, viewed 12 May 2011, <[Link]

product/39-bcg-matrix/how-to-make-a-bcg-matrix-model-boston-consultancy-groupmatrix-model Mittal, V & Kakakuma, W A 2001, Satisfaction, repurchase intent, and repurchase behaviour: investigating the moderating of customer characteristics, Journal of Marketing Research, vol XXXVIII, pp. 131 142. Reinartz, W, Krafft, M, & Hoyer, W D 2004, The customer relationship management processes: its measurement and impact on performance, Journal of Marketing Research, vol 41, pp. 293305 Thompson, B 2005, The loyalty connection: Secrets to customer retention and increase profits, Right Now Technologies, USA.