The
fact that the overall cost of losing customers is at rising an alarming rate
has made businesses to seek new techniques to gain and retain customer base in
order to stay profitable. Service has long been an important factor in customer
retention. Its role is continuously becoming more critical and will be of
greater importance with every passing day (Potter-Brotman, 1994).The Businesses
that fulfill customer needs as per their wishes and retain customers are more
likely to flourish than businesses which do not do this Choi and Chu (2001). Kotler
2003 and Payne 2006 propose that relatively few companies understand the
economics of retention in their own business in spite of the fact that they
recognize the importance of customer retention in general. Companies can
clearly benefit from increasing the retention rates. A number of factors may
drive customer retention, such as satisfaction, quality, switching costs (Seo
et al., 2008), CRM (Verhoef, 2003), marketing strategies (Larry and John,
1993), and customer acquisition (Thomas, 2001). Customer retention involves the
steps taken by a selling organisation in order to reduce customer defection.
Successful customer retention starts with the first contact an organization has
with a customer and continues throughout the entire lifetime of a relationship.
Customer retention is important to most companies because the cost of acquiring
a new customer is far greater than the cost of maintaining a relationship with
a current customer (Ro King, 2005). Several studies have put emphasis on the
significance of customer retention (Dawkins and Reichheld, 1990). The argument
for customer retention is relatively straightforward. It is more economical to
keep customers than to acquire new ones. The costs of acquiring customers to “replace”
those who have been lost are high. This is because the expense of acquiring
customers is incurred only in the beginning stages of the commercial
relationship (Reichheld and Kenny, 1990). In addition, longer-term customers
buy more and if satisfied may generate positive word-of mouth promotion for the
company. Additionally, long-term customers also take less of the company’s time
and are less sensitive to price changes (Healy, 1999). These findings highlight
the opportunity for management to acquire referral business, as it is often of
superior quality and inexpensive to obtain. Thus, it is believed that reducing
customer defections by as little as five percent can double the profits (Healy,
1999).Extant literature in marketing has looked into the various aspects of
customer relationship. While some studies are concerned with formulating
methods to model customer retention (Reinartz and Kumar, 2003), other
studies are interested in studying the drivers of customer retention such as
satisfaction (Bolton, 1998) and competitors’ offerings (Rust, Lemon & Zeithaml,
2004). One of the first empirical documentation as per Reicheld’s
(1996) shows the relationship between retention and profitability. He
reported a significant enhancement in profits from small increases because of
increase in customer retention rates. For example, he showed that as little as
a 5% increase in retention had a significant impact on the net present value of
the firm ranging from 95% in the case of advertising agencies to 35% in
telecommunication industry. Relationship marketing was first introduced by
Berry (1983); interest has been growing in the value of retained customers and
the notion that customer relationships are assets that can be managed in order
to improve customer retention and profitability. In simple terms, relationship
marketing is concerned with how firms create and enhance their relationship
with customers for long-term profitability. The strategy of building long-term
relationship with customers rather than distinct transactional- based strategy
is arguably logical Kotler (1997), if retaining customers increase a company’s
profitability (Dawes and Swailes,1999). Khan (2012), examined the importance
of future customer’s relationship using customer satisfaction and customer
retention on customer loyalty in telecom industry of Pakistan. The implications
of the study were that a company should better manage their relationships with
the customers as a competitive policy in mobile telephone marketplace. It has
been proved in literature that there is a link between customer loyalty and
organizational profitability (Reichheld, 1996b). This is, as a
consequence of reduced cost of retaining a customer and achievement of a zero
defection of profitable customers. However, retention should not be taken for
loyalty. Loyalty is valid when customers have options to choose from. As such,
service providers should understand why customers choose to stay and should not
assume that it is a positive conscious choice, Colgate et al, (1996).
This is because, they may be lured away by attractive offers made by
competitors when they experience dissatisfaction incidents (Jones
and Farquher, 2003). There are strong arguments for management to
carefully consider the range of factors that increase customer retention rate (Omotayo
et al, 2008). Building and maintaining a successful long term-customer
relationship as well as survival in today’s competitive market place demands
the delivery of service quality to customers (Zeithaml, Berry and Parasuraman,
1996; Claycomb and Martin 2001). Increased customer loyalty among
customers is a recipe to successful retention rate. Detailed examination of the
extant literature (Reichheld, 1996; Turnbull & Wilson, 1989; DeSouza, 1992; Zeithaml
& Bitner, 2000; Dawes & Swailes, 1999) reveals several
strategies for keeping existing customers. Loyal customers are valued because
it is perceived that as they spend a greater percentage of their earnings with
a given retailer, they are less likely to switch to an alternate supply (Enis
& Paul, 1970) and are more willing to accept service failures (Bolton,
1998).

Several
studies have attempted to identify a comprehensive feature list to serve as a
basis for measuring customer retention. Levitt (1983) proposed a four-ring
concept of the total product: core, expected, augmented, and potential
products. Each of these four categories includes a number of features that can
serve in measuring customer retention. Based on Levitt’s discussion, Clemmer
(1990) provided a three-ring conceptual level for services: basic
service, service support, and enhanced service. Another generally accepted
categorization is the classification scheme called utilitarian versus hedonic
product outcomes (Batra & Ahtola, 1990). Utilitarian features are those that
provide the basic functions that the product is required to deliver, and the
hedonic features are those that provide intangible pleasures. This indicates
that consumption has two dimensions and both should be included in any feature
list. Another way to determine key retention determinants is through focus
groups (Fenn, 1982). One way to use focus groups is to employ
means-end chain analysis (Gutman, 1991), which is a probe-driven
method to determine the hierarchy of benefits that consumers see in a product