Question
What does it mean to "keep" a customer?
Answer
I don't have a theory, but I have some interesting examples to ponder that suggest some key characteristics of "keeping" a customer (curiously, all B2B). I'll evolve this answer as I think/clarify these ideas.
The one thing that leaps out at me when I ponder this set of examples is that it is VERY hard for a relationship to stay in one place or be equal. Usually there is some sort of inequality, and the relationship deepens over time.
Another point that doesn't leap out just from the examples is the element of mutual learning that is there in B2B. Learning to sell to the government, and having the government "learn" to buy from you is a very complex, long process. There is a lot of such 2 way learning of either arbitrary purchasing processes or more fundamental things in B2B. This makes "keep a customer" a matter of getting an ROI on the sunk costs of becoming a customer in the first place, as well as avoiding the switching costs of a new relationship.
Formal vendor lock-in (exclusive contracts with guaranteed contract periods and penalties for breaking) are inserted when there is high initial cost and more incentive for one party to want to get out.
In consumer market contexts, "keeping a customer" tends to be a less important subject, since sellers tend to serve volume markets. You have loyalty card/bonus points approaches to keeping a customer, rather than one based on exceptional relationships. This shows up in the pricing model as well: people aren't really loyal to a single grocery store chain. They are likely to get loyalty cards for multiple chains. In DC, Giant is the cheap store, Harris Teeter is the nicer store and Whole Foods is where you want to go if you want to pay the premium for really fresh, good stuff. When I lived there, we went to all three depending on needs.
Cellphone minutes are the perfect example of lock-in mechanisms for keeping customers in consumer markets.
Cheap razor/costly blades is a curiously upside down incentive in some markets, since it lowers switching costs but has the effect of retaining the customer.
Final thought: there are some who believe in a "retention, not detention" philosophy where artificial constraints to force a "keeping the customer" is considered anathema. But I think expecting pure relationship capital to do the trick is unrealistically naive in most cases. Asymmetry of power in most buyer/seller relationships is a reality, and without some locks or other ways to balance things out, one party usually has an incentive/ability to walk away at high cost to the other.
- Quasi-marriage: a customer you might as well acquire or be acquired by, like a very tight supply-chain relationship where each party represents more than 50% of the business of the other.
- Arms race: where a buyer/supplier end up driving each other on a spiraling increasing complexity path, like OS vendors and chip vendors.
- Asymmetric type A: the buyer is most of the seller's business (example, US government and aerospace companies, Walmart and Walmart's suppliers)
- Asymmetric type B: the seller is most of the buyer's supply (example, Intel x86 chips and computer manufacturers)
The one thing that leaps out at me when I ponder this set of examples is that it is VERY hard for a relationship to stay in one place or be equal. Usually there is some sort of inequality, and the relationship deepens over time.
Another point that doesn't leap out just from the examples is the element of mutual learning that is there in B2B. Learning to sell to the government, and having the government "learn" to buy from you is a very complex, long process. There is a lot of such 2 way learning of either arbitrary purchasing processes or more fundamental things in B2B. This makes "keep a customer" a matter of getting an ROI on the sunk costs of becoming a customer in the first place, as well as avoiding the switching costs of a new relationship.
Formal vendor lock-in (exclusive contracts with guaranteed contract periods and penalties for breaking) are inserted when there is high initial cost and more incentive for one party to want to get out.
In consumer market contexts, "keeping a customer" tends to be a less important subject, since sellers tend to serve volume markets. You have loyalty card/bonus points approaches to keeping a customer, rather than one based on exceptional relationships. This shows up in the pricing model as well: people aren't really loyal to a single grocery store chain. They are likely to get loyalty cards for multiple chains. In DC, Giant is the cheap store, Harris Teeter is the nicer store and Whole Foods is where you want to go if you want to pay the premium for really fresh, good stuff. When I lived there, we went to all three depending on needs.
Cellphone minutes are the perfect example of lock-in mechanisms for keeping customers in consumer markets.
Cheap razor/costly blades is a curiously upside down incentive in some markets, since it lowers switching costs but has the effect of retaining the customer.
Final thought: there are some who believe in a "retention, not detention" philosophy where artificial constraints to force a "keeping the customer" is considered anathema. But I think expecting pure relationship capital to do the trick is unrealistically naive in most cases. Asymmetry of power in most buyer/seller relationships is a reality, and without some locks or other ways to balance things out, one party usually has an incentive/ability to walk away at high cost to the other.