Customer retention trategies - Risk parameters in service contract renewal - Case study

Service provider switching phenomenon and customer retention strategies have recently gained increasing importance in the field of relationship marketing due to globalization and maturity in many service industries. The objective of this thesis is to provide customer relationship managers understanding and gauges for increasing customer life-time value (CLV) through customer retention strategies. To improve CLV and thereby revenues and profits firms should first identify the value of their customers and then execute targeted marketing activities aiming at either: 1) managing the duration of the relationships, or 2) influencing customers' purchase behaviors. This thesis provides answers primarily to the first avenue by building understanding on the determinants that differentiate service customers' group membership between 'switchers' and 'stayers' and by examining the strength and relative directional impact of the identified antecedent risk-factors on the customers' propensity to terminate maintenance service contracts. The literature review of this thesis creates links between the areas of relationship marketing, customer retention and switching behavior, and covers the switching phenomena from switching process, switching antecedent and customer heterogeneity point-of-views. Based on the literature a novel conceptual framework is created supplementing elements of the Customer Asset Management of Services (CUSAMS) model with theoretical underpinnings from the Switching Path Analysis Technique (SPAT) and Push, Pull, Mooring (PPM) framework. The examination of the relationships based on the conceptual framework was done by the means of quantitative research methods using logistic regression analysis. As a result a dynamic model of service contract renewal for an individual firm, at the contract level, is developed. The decision to renew a service contract is modeled as a function of customers' overall relationship perceptions and loyalty intent, customers' behavioral characteristics, customers' relationship value perceptions as well as prior loyalty behaviors. The findings of this thesis suggest that customer relationship managers and marketers should pay special attention to customer Net Promoter Scores, representing satisfaction and commitment, as well as customers' cross-buying behaviors in other non-focal services. Furthermore, prior switching behavior and commitment to equipment brand in also maintenance services were partially supported by the study as differentiators between switching-prone and non-switching prone customers. Finally, no significant relationship between critical incidents and price level (customer value perceptions) on propensity to switch service providers were found. The study is conducted as a commission for a Nordic multinational company that offers both manufactured industrial products and related maintenance services