IMPACT OF CUSTOMER RETENTION ON BUSINESS PERFORMANCE (A STUDY OF FAVOURITES FAST FOOD INDUSTRY)

Thesis Overview

<p> </p><p><strong>INTRODUCTION</strong><br><strong>1.1 &nbsp; &nbsp; BACKGROUND OF THE STUDY</strong><br>As customers are the backbone of any business, firms without customers would not be able to sustain their performance. This is because such firms are believed to have no revenues, no profits and therefore no market value. Accordingly, managing customers is deemed to be very crucial business agenda in which the key focus has been switched in recent years from attracting new customers to preserving existing ones. Both practitioners and scholars have discovered that it is much easier and cheaper to retain the exiting customers than investing on the potential customers. A decent customer retention level is believed to be a significant contributor towards improvement in the overall firm performance. A glimpse on the existing researches on customer retention highlights that financial sector has been thoroughly investigated which leave a room for a detailed investigation on customer retention within the fast-food industry.<br>Customer retention is seen as an obligation by a customer to carry out business transactions with a particular firm on a regular basis (Hansemark &amp; Albinsson, 2004). In addition, Molapo and Mukwada (2011) have ascertained that firms are all out to foil attempts by customers to switch retailers and indirectly retain them. also, Erdis (2009) has established that firms direct their marketing efforts to please their current customers in order to retain them and foster long-term relationships with them. Customers will frequently patronise firms which meets their needs and hence, an enduring relationship will be fostered (Fill, 2005).<br>Farquhar (2004) claimed that retained customers increase firms’ profits because acquiring new customers are a costly affair. This is in line with the findings of Reichheld and Schefter (2000) which ascertained that firms that are able to raise customer retention by five per cent would be able to boost profits by 25 – 95 per cent. In addition, the costs of acquiring new customers are five times more than retaining an existing customer for a firm (Tu, Lin, &amp; Chang, 2011). Thus, boosting customer retention will increase firm’s profits and performance by leaps and bounds (Sim, Mak &amp; Jones, 2008).</p><p><strong>1.2 &nbsp; &nbsp; STATEMENT OF RESEARCH PROBLEM</strong><br>Customer retention is not given the attention due to it, by most firms especially the fast-food industry. It has been found that customer retention has more impact on profits than market share, economies of scale and other variables that are considered to provide competitive advantage to a firm. In fact, it has been found that companies, which reduced customer defections by 5 per cent, could boost profits from 25 per cent to 85 per cent.<br>Traditionally, marketing management has relied on permutations and combinations of the marketing mix elements (product, price, place and promotion) to achieve market dominance through enhanced market share by acquiring new customers. This approach considers the formation of homogenous segments of relatively heterogeneous customers. It does not take into account the history of association between the customer and the seller and hence does not reveal the actual buying behaviour of the customer. Aggressive branding and promotions are other tactics used by sellers adopting the traditional marketing approach. But brands with the highest market share are not always the most profitable. In some cases, they may even be unprofitable.<br>The relationship marketing approach on the other hand, focuses on customer retention, encouraging increased spending and on long-term relationships with customers. Gronroos, a research scholar, has stated - ‘Marketing is to establish, maintain and enhance relationships with customers and other parties at a profit so that the objectives of the parties involved are met. This is done by a mutual exchange and fulfillment of promises'. Customer retention should thus become a part of the strategic marketing planning process of any firm.<br>It is on this note that the researcher investigates the impact of customer retention on business performance.</p><p><strong>1.3 &nbsp; &nbsp; OBJECTIVES OF THE STUDY</strong><br>The overall objective of the research study is to examine the impact of customer retention on business performance. Other specific objectives include:</p><div><ol><li>To determine the factors that influences customers retention</li><li>To examine the dimensions of customer retention</li><li>To examine the relationship between customer retention and business profitability</li></ol></div><p><strong>&nbsp;</strong><strong>1.4 &nbsp; &nbsp; RESEARCH QUESTION</strong><br>The following research questions formed the basis for the study:</p><div><ol><li>What are the factors influencing customer retention in the fast-food industry?</li><li>What effect does customer retention has on business growth?</li><li>What is the relationship between customer retention and business profitability?</li></ol></div><p><strong>1.5 &nbsp; &nbsp; RESEARCH HYPOTHESIS</strong></p> <br><p></p>